Acquisitions to boost Polypipe

Revenue is also likely to grow because of two recent acquisitions. In August it bought Permavoid at a price of up to £16.5m, depending on future performance. It specialises in surface water management, an issue that is in the spotlight at the moment given a perceived increase in freak weather and flooding. Then in October it paid £52m, or 8.2 times cash profits (Ebitda), for Manthorpe Building Products, a specialist in moulded plastic and metal products. Both companies have common end users, specifically housebuilders and the repair, maintenance and improvement (RMI) market.

Trading is split into two divisions. Residential systems (54 per cent of last year's sales and 61 per cent of profit) serves the housebuilding sector, where continued growth in output helped to push like-for-like revenue in the four months to the end of October up by 11.5 per cent, and would have been stronger were it not for a subdued RMI market. Much of this reflects consumer caution and public spending constraints some relating to a diversion of budgets towards cladding refurbishment. Demand for new piping and other systems is underpinned by a drive for legacy material substitution, which is where old systems, typically made of lead, are replaced.

The commercial and infrastructure systems division, meanwhile, has seen a significant recent pick-up in trading has also taken place in the commercial and infrastructure systems division, with revenue growth of 8.6 per cent on a like-for-like basis in the four months to October. Part of this reflects gathering pace in the UK roads programme, but also the introduction of new products such as a new system for waste disposal in tall buildings.

The recent strong trading at both divisions has helped offset the slow start to the year, with group like-for-like sales in the 10 months to October 4.1 per cent ahead overall.

In addition, margins are expected to improve in the second half, following the disposal of its low-margin French business, and a better profit performance in the Middle East following the closure of its manufacturing facility and operational leverage on higher volumes.

Finances have been given a makeover, with a £300m revolving credit facility renewed until November 2023, and with an option to extend this for a further two years. The acquisitions have added to borrowings, but broker Peel Hunt expects net debt to cash profits to be a manageable 1.8 times by the end of the year, only marginally up on the 1.7 times reported at the half-year stage, with a drop to 1.3 times expected by the end of 2019. Input costs have largely been managed well, supported by the company’s recycling plant. Polypipe remains on course to meet management’s full-year expectations, although the one unknown factor is the weather. The cyclical nature of the construction business means Brexit, as well as the weather, is a source of uncertainty.