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Grafton suffers as RMI market weakens

The building materials supplier is hoping greater political certainty will feed through to a more buoyant UK merchanting market
February 27, 2020

Against an uncertain political and economic backdrop, weakened demand in the repair, maintenance and improvement market weighed on domestic merchanting revenue for Grafton (GFTU) last year. The fight with competitors for sales volumes also weakened pricing, eroding the operating margin and resulting in a 7 per cent decline in adjusted operating profit for the building materials supplier’s core UK merchanting business. 

IC TIP: Hold at 891p

The benefits of any greater macroeconomic certainty will not show in the group’s trading figures until the half-year point, according to chief executive Gavin Slark. “The construction projects don’t just turn on 24-hour’s notice,” he said. 

However, UK weakness was countered by a more buoyant Irish market, which benefited from an increase in housing supply. That translated into rising sales for Grafton's merchanting operations in the country, and a 13 per cent increase in operating profit to £47m.

The group also expanded its presence in the Netherlands by acquiring the 51-branch Polvo business and relocating Isero to a new distribution centre that doubled capacity and improved its logistics function.

Analysts at Numis forecast adjusted pre-tax profit of £175m and EPS of 58.9p for 2020, rising to £184m and 62.2p in 2021. 

GRAFTON (GFTU)   
ORD PRICE:891pMARKET VALUE:£2.12bn
TOUCH:888-891p12-MONTH HIGH:997pLOW: 644p
DIVIDEND YIELD:2.1%PE RATIO:15
NET ASSET VALUE:572p*NET DEBT**:39%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20152.2112041.612.5
20162.5111439.613.8
20172.7215454.015.5
20182.6017460.918.0
20192.6717360.519.0
% change+3-1-1+6
Ex-div:5 Mar   
Payment:6 Apr   
*Includes intangible assets of £761m, or 319p a share **Includes lease liabilities of £543m