Operational gearing is the name of the game at Marshalls (MSLH). So combining a relatively fixed cost base with a healthy increase in sales meant that profits in the six months to June grew at double the pace of turnover (see table). This puts the building materials supplier well on the way to achieving targets set down in its 2020 plan, including boosting operating margins and the return on capital.
Progress along these lines has been impressive, with the return on capital employed rising from 19.9 per cent to 23.7 per cent, while the operating margin grew from 12.8 per cent to 13.6 per cent. The business model throws off a lot of cash, boosted by effective management of working capital including tight control of inventories. The £8.8m debt pile of a year ago has been turned into net cash of £1.2m, despite paying out £17.4m in June on last year’s final and supplementary dividends. And while the group remains focused on making bolt-on acquisitions, if nothing is concluded in the second half, Marshalls may well declare a special dividend.
The Construction Products Association has increased its growth prediction for UK market volumes to 1.9 per cent in 2017, a figure that Marshalls continues to outperform. Sales are split for the most part between the public sector and commercial end-market, and the domestic market. The latter, which accounts for around a third of group turnover, pushed sales ahead by 17 per cent, with more sales being driven through the Marshalls register of approved domestic installers, now up to around 2,000. And while the repair, maintenance and improvement market remains relatively subdued, Marshalls identified a rise in driveway and patio activity, in many cases paid for by money released from pension funds.
Sales to public sector and commercial clients, around 60 per cent of group turnover, grew by 3 per cent from a year earlier, with particular focus being placed on those parts of the market offering the greatest growth potential. That includes new-build housing, water management and rail. The balance of sales are generated from the international business where turnover rose by a quarter, boosted by the opening of a new sales office in Dubai.
Analysts at Peel Hunt are forecasting adjusted pre-tax profit for the year to December 2017 of £51m and EPS of 20.9p (from £46m and 18.8p in 2016).
| MARSHALLS (MSLH) | ||||
| ORD PRICE: | 413.4p | MARKET VALUE: | £824m | |
| TOUCH: | 413-414.1p | 12-MONTH HIGH: | 420p | LOW: 256p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 111p* | NET CASH: | £1.2m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 202 | 25.1 | 10.4 | 2.9 |
| 2017 | 219 | 29.1 | 12.0 | 3.4 |
| % change | +8 | +16 | +16 | +17 |
| Ex-div: | 19 Oct | |||
| Payment: | 06 Dec | |||
| *Includes intangible assets of £40m, or 20p a share | ||||
