Weaker volumes drive Genuit’s lower rating

Joe Vorih, who became chief executive of Genuit (GEN) in February last year, said the building products group had delivered “what I consider to be quite pleasing results”.

The fact that he had to qualify his statement indicates that they were not. Although the company pointed to growth in underlying operating profit and earnings per share, on a statutory basis both measures experienced double-digit declines.

Genuit had to contend with a number of issues, including a cyber security breach and chip shortages that hit its boilers business. One-off costs of £40mn also included almost £15mn of intangibles impairments and £9mn of restructuring costs.

The former included writedowns of goodwill, as the company increased the discount rate at which it valued future cash flows by 250 basis points. “We now consider the matter dealt with,” CFO Paul James said.

The latter is the result of Vorih’s plan set out at its capital markets day in November for a “lean transformation” of the business, which he said will deliver about £8mn a year in annual savings. Restructuring costs are likely to remain elevated this year, though.

Genuit’s shares haven’t made the kind of recovery that other companies in the building products market have, mainly because of a profit warning in October as volumes fell due to weakness in the home improvement market. As a result, they trade at just over 11 times FactSet consensus forecast earnings, well below their five-year average of 16 times. Yet with “challenging and uncertain market conditions” expected to continue this year, we agree with broker Shore Capital’s contention that on current earnings forecasts the shares look fairly valued. Hold.

Last IC View: Hold, 408p, 18 Aug 2022