Shares in landscaping products group Marshalls (MSLH) bucked a weak market, rising 3% to 778p while the FTSE 250 fell 1.2%, after the firm posted a sharp surge in first half profits and indicated it would raise its guidance for this year and next year.

Thanks to strong trading and healthy order books, revenues for the six months to June were 42% higher than last year at £298 million while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 210% to £56.4 million.

The results were also better than the same period in 2019, before the pandemic impacted the house building industry, although returns on capital employed were slightly lower at 18.1% against 19.3% two years ago.

BUOYANT DEMAND

According to the Construction Products Association’s summer forecast, construction output is expected to rise 13.7% this year and 6.3% next, driven by 20%-plus growth in infrastructure this year and a similar level of growth in housing starts, even though the industry faces shortages and price rises in materials and higher wage costs.

For its part, Marshalls expects to meet or outperform the market in both years thanks to supportive trends in new build housing, strong demand from the repair, maintenance and improvement market, and major rail, road and water projects.

‘Trading continues to improve, and recent order intake has been good’, said chief executive Martyn Coffey. ‘Encouraged by the continuing strength in demand and the positive trading environment, the board is confident of making further progress and is accordingly raising its expectations for 2021 and 2022.’

FOCUS ON CASH AND COSTS

The firm has managed to mitigate the challenges facing other suppliers by virtue of being vertically integrated, that is it owns its own concrete manufacturing sites and quarries and its own vehicle fleet to get the finished product to its customers, although it has seen a squeeze on prices of imported products due to a shortage of containers which has raised transport costs.

A focus on cash flow and capital discipline saw 93% of EBITDA translate into operating cash flow, while net debt on a pre-IFRS 16 basis (excluding leases) was £7.6 million against £53.9 million a year ago.

ANALYST VIEW

Analysts at Peel Hunt have raised their pre-tax profit estimates for this year and next year by 6% and 5% respectively and point out that the firm has already raised guidance three times since January, yet the shares were flat until today.

They describe the rating of 13.6 times enterprise value to EBITDA as ‘a reflection of the group’s excellent track record of delivery and ability to recover cost inflation’, while raising their target price to 800p.

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Issue Date: 19 Aug 2021