Genuit continues rebuilding efforts against tough backdrop

Building materials group Genuit (GEN) is continuing with its own rebuilding efforts in what remains a tough market.

The company’s revenue fell by 5 per cent on a like-for-like basis, as price increases failed to make up for a 14.5 per cent decline in volumes. 

Sustainable Building Solutions, its biggest unit, witnessed a 10.7 per cent decline, which the company blamed on weaker demand from the housebuilding market. However, margin improvement efforts meant the amount of underlying profit it generated was largely flat. Indeed, after recording £3.7mn of cost savings in the first half (it is targeting £6mn of recurring savings overall), group-wide operating profit increased by 2 per cent to £36.4mn.

One-off costs of £10.6mn – £5mn of which related to restructuring charges – dragged down pre-tax profit by around 10 per cent, though. Chief executive Joe Vorih expects the bulk of its restructuring costs to be incurred this year.

Progress was made in terms of its working capital cycle, which boosted cash generated from operations by 72 per cent year on year to £31.7mn. This helped to trim net debt (excluding leases) to around £155mn, or 1.3 times cash profit.

Yet given the tough backdrop for both the UK's housebuilding and home improvement markets, Genuit is currently “fighting hard to stand still”, noted Flor O’Donoghue, an analyst at stockbroker Davy.

The company's heavy exposure to its home market (88 per cent of group revenue) will continue to be a drag as long as the construction sector remains depressed. Genuit admitted that an improvement in conditions looks unlikely this year, so even with its shares trading at under 12 times FactSet consensus forecast earnings – well below their five-year average of 16 times – there's no impetus to rush in. Maintain hold.

Last IC View: Hold, 273p, 14 Mar 2023