Shares in building materials distributor and DIY retailer Grafton (GFTU) added 2.7% to £13.44 after the firm posted record first half operating profits thanks to the strength of the home improvement market.

The company, which operates the Selco distribution business and the Leyland SDM DIY chains in the UK and Chadwicks and Woodies in Ireland, reported a 46% increase in revenues to £1.03 billion for the six months to June and a 204% increase in adjusted operating earnings before property gains to a record £142.4 million.

STRATEGIC PROGRESS

The firm also took a major strategic step with announcement at the beginning of July that it would dispose of its traditional UK merchanting business for an enterprise value of £520 million, while keeping several freehold properties with a market value of £25 million which are ripe for development.

‘2021 marks a key phase of a very considered strategic transformation we have executed at Grafton over recent years, which today comprises a portfolio of high returning, differentiated businesses with the capacity to grow and outperform in our chosen markets’, commented chief executive Gavin Slark.

‘The overall outlook for the Grafton businesses is positive given the strength of our current market positions, geographic diversity, strong balance sheet and investment pipeline, alongside supportive sector and macro trends together with the successful rollout of vaccines to date in the four countries where the Group now operates.’

RMI BOOM TO CONTINUE

The firm has been a major winner from the resilience of the repair, maintenance and improvement market in the UK and Ireland, as homeowners spend money on renovations instead of travel, leisure and hospitality, and the chief executive sees no signs of a slowdown.

‘We believe that this trend is likely to continue in the second half given the desire of households to improve the amount and quality of indoor and outdoor living space.  The spending of an element of savings built up during the pandemic on housing RMI is also likely to add some impetus to the market’, said Slark.

EXPERT VIEW

Analyst Flor O’Donoghue at Dublin broker Davy called the results ‘outstanding’, with operating earnings excluding property sales some 20% above the firm’s estimate.

While Grafton left its 12-month operating profit guidance unchanged at £240 million, it noted like-for-like revenues had continued to grow this month and last month. ‘We expect to increase our full year trading profit forecast once again’, said O’Donoghue, adding ‘This is an exciting time for Grafton, and the group is supported by an exceptionally healthy financial position’.

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Issue Date: 25 Aug 2021