Genuit tries to avoid supply blockages

Genuit’s (GEN) first set of results under new chief executive Joe Vorih at the helm were solid enough, if unspectacular. 

The building products manufacturer said it responded quickly to input cost inflation by increasing its own prices. However, its underlying operating margin was squeezed by 150 basis points to 14.9 per cent, as it experienced a lag between cost increases in the first quarter and its own price rises in the second.

An ”isolated cyber incident” also cost the company £4.4mn and a shortage of chips for circuit boards meant the Adey business it bought last year, which provides filters for heating systems, underperformed to the tune of about £2.6mn. Stripping those two out, Genuit’s underlying operating margin would have been 16.5 per cent, similar to last year’s level, it argued.

The company increased working capital spend in the first half to avoid supply chain shortages and although capex was lower at £9.4mn, it will ramp up in the second half to reach £40mn for the full year. Even with greater spending, the company expects to meet analysts' full-year expectations. It is also planning a “strategy refresh”, with a capital markets event due in the autumn.

Although it's natural for new CEOs to attempt to put their own stamp on things, there is a danger that this adds another element of uncertainty given the worsening short-term outlook for the construction sector.

Genuit’s shares have fallen in value by about 30 per cent since the start of the year but with broker Jefferies cutting its full-year earnings forecast by 5 per cent to 34.6p a share, the current share price of 12 times forward earnings seems like fair value given elevated risks. Move to hold.

Last IC View: Buy, 505p 15 Mar 2022