Marshalls cuts dividend and guidance on profit slump

This was a gloomy set of results from Marshalls (MSLH), as suggested by a 10 per cent markdown of the shares. The building products business slashed its dividend by almost half as profits tumbled in the context of continuing challenges for housing market demand. It now thinks revenue this year will be lower than it had expected and that profits will be flat, after the top line went backwards in the first two months of the new year.

Investors knew that the figures weren't going to be pretty after the annual revenue contraction was trailed in January. But the warning from new chief executive Matt Pullen that a forecast slight recovery in the second half is "expected to be slower and more modest than previously anticipated" has now added a big dose of uncertainty to the outlook. 

There was evidence of demand damage across the business last year, from new-build housing to traditional roofing products operations. Revenues at the key landscaping division (which contributed almost half of total sales) and the building products division were down 18 per cent and 12 per cent, respectively, with operating profit falling by over 50 per cent at each. 

Over at the Marley roofing products business, revenue rose 36 per cent to £180mn due to consolidation effects – the company bought roof tile maker Marley at an enterprise value of £535mn back in 2022 – but like-for-like revenue was still down by 9 per cent. We remain concerned about the prospect of impairment of the Marley goodwill given market conditions, with goodwill and intangible assets making up 50 per cent of Marshalls' total assets. 

The shares trade at 16 times forward consensus earnings, a level that means we remain bearish. Sell. 

Last IC view: Sell, 250p, 16 Aug 2023