Genuit reports improved profit despite softer sales

The restructuring efforts under way at building products group Genuit (GEN) paid dividends last year, as improved margins translated into a higher pre-tax profit, despite sales remaining sluggish.

Although a softer housebuilding market (from which the company generates around 30 per cent of sales) and continued weakness in home improvement demand (responsible for another 30 per cent) contributed to a 14 per cent slide in sales in its sustainable building solutions arm, the £15mn of annualised savings achieved helped it to increase its underlying operating margin to 16 per cent, from 15.8 per cent a year earlier.

Although this came with one-off restructuring costs of £15.3mn, up from £9.3mn a year earlier, chief financial officer Tim Pullen said that all six of the earmarked site closures (two of which are still to complete) have now largely been accounted for.

Chief executive Joe Vorih argued that it had also been able to keep key people and there had been “no reduction in capacity” as a result of the rationalisation, leaving the business better placed to deal with an upturn.

And even if one isn’t quickly forthcoming, he argues that the Future Homes Standard due to kick in next year offers Genuit the opportunity to sell more higher-value products such as heat pumps and underfloor heating to housebuilders than it has done traditionally.

The market seems convinced, with Genuit’s shares up by 57 per cent since October, bringing them to 16 times FactSet’s consensus forecast earnings – in line with their five-year average. And even if earnings are forecast to remain flat this year, expectations of a broader market recovery from 2025 onwards signal more meaningful profit growth ahead. Upgrade to buy.

Last IC view: Hold, 300p, 15 Aug 2023