Grafton (GFTU), better known for its building merchant subsidiaries Selco, Buildbase and Plumbase, has had a great start to 2017. Against a decent rise in the top line, profits grew by double digits on both a statutory and adjusted basis in the six months to June, motored by the Irish merchanting business, where operating profit increased 39 per cent at constant currencies to £16.5m. Encouragingly, a step-up in investment was vindicated by a 13.2 per cent return on capital employed, a gain of 70 basis points year on year.
Although its size precluded a major impact on the bottom line, the Netherlands merchanting division was the star performer. January’s acquisition of the 14-branch Gunters en Meuser business, together with market-beating growth, fed through to a 38 per cent swell in revenues at constant currencies. This expansion, which brought with it a slightly less profitable product mix, caused a 90 basis point decline in the adjusted operating margin. At 10.4 per cent, this is still 4.8 percentage points higher than the UK average, and explains why analysts at broker Numis think the Netherlands should form management’s primary focus amid expectations of a flat period of domestic trading ahead.
Those same analysts are guiding for pre-tax profit of £149m and EPS of 50.9p in the year to December 2017, up from £136m and 47.4p in 2016.
| GRAFTON GROUP (GFTU) | ||||
| ORD PRICE: | 781p | MARKET VALUE: | £1.8bn | |
| TOUCH: | 780-782p | 12-MONTH HIGH: | 800p | LOW: 462p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 472p* | NET DEBT: | 7% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend share (p) |
| 2016 | 1.23 | 62.8 | 21.5 | 4.75 |
| 2017 | 1.34 | 74.1 | 25.5 | 5.25 |
| % change | +9 | +18 | +19 | +11 |
| Ex-div: | 07 Sep | |||
| Payment: | 05 Oct | |||
| *Includes intangible assets of £640m, or 270p a share | ||||
