Solid half-year numbers for Grafton (GFTU) mask a concerning slowdown at the key UK merchanting businesses, which accounts for the lion's share of group revenues. Management noted "progressively weaker trading conditions" in the run-up to June's EU referendum, although the segment did record marginally positive revenue growth in the seasonally quieter July/August period.
It's clear that competitive pressures had been mounting anyway, particularly with regard to the plumbing, heating and contracts business. To counter this, management has instituted organisational changes which will result in an exceptional charge of around £20m for the full year.
That performance contrasted with the continuing profit growth in the builders' warehouse business Selco and an increasingly meaningful contribution from Grafton's domestic Irish business, as the nation's economy kicks back into gear.
Grafton extended its geographic spread through last November's acquisition of Isero in the Netherlands, which has bedded in well. Indeed, the increase in half-year revenues was split fairly evenly between acquisitions and the company's existing businesses. So despite margin pressure in the UK, the overall performance provides cause for optimism, with operating profit excluding restructuring costs up 10 per cent to £67.3m.
Prior to these numbers, Stifel forecast adjusted pre-tax profit of £137m for the December year-end, leading to EPS of 46.9p, before rising to £140m and 47.8p in 2017 (from 119m and 41p in 2015).
GRAFTON (GFTU) | ||||
---|---|---|---|---|
ORD PRICE: | 561p | MARKET VALUE: | £1.33bn | |
TOUCH: | 560-561p | 12-MONTH HIGH: | 757p | LOW: 435p |
DIVIDEND YIELD: | 2.3% | PE RATIO: | 13 | |
NET ASSET VALUE: | 428p* | NET DEBT: | 9% |
Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2015 | 1.08 | 57.9 | 20.2 | 4.50 |
2016 | 1.23 | 62.8 | 21.5 | 4.75 |
% change | +13 | +8 | +6 | +6 |
Ex-div: 8 Sep Payment: 7 Oct *Includes intangible assets of £599m, or 253p a share |