Profit down 13% at Marshalls as demand weakens

The muted response to a disappointing set of results from building products group Marshalls (MSLH) can be attributed to the fact that it trailed headline numbers last month when it announced 250 job cuts.

Although the company reported a 2 per cent increase in half-year revenue, this was due to the contribution of four additional months of trading from Marley – the roofing products business bought for £535mn in April last year. On a like-for-like basis, revenue actually fell by 13 per cent, with chief executive Martyn Coffey reporting a “material reduction in volumes” across all three of its operating divisions – building products, landscaping and roofing.

This was blamed on continued weakness in demand for new homes and home improvement products, which between them make up 60 per cent of Marshalls’ revenue.

The company still seems upbeat about its medium-term prospects once these markets recover, and highlights the positive contribution the Marley business has made to supporting its adjusted operating margin (which fell by 2 percentage points to 11.8 per cent). However, few would deny that such a sizeable acquisition was poorly timed. The 63 per cent decline in Marshalls' share price since it was announced means the combined entity is now only worth £100mn more than it paid. 

We highlighted concerns about the purchase shortly after completion, but moved the shares to hold in March after the sell-off led to a more attractive valuation (they trade at 13 times earnings, below their five-year average of 21 times). However, with market conditions expected to remain weak into next year, investors should remain concerned about the prospect of writedowns given the sizeable amount of goodwill recorded on the Marley acquisition. Back to sell. MF

Last IC View: Hold, 290p, 15 Mar 2023