UK-focused building materials company Marshalls (MSLH) has steamed on through the troubled waters of Brexit, increasing profits and the dividend each year on the way. What's more, while nerves are running high about the potential outcome from ongoing negotiations, the company looks well set to continue making progress.
Strong cash flow
Modest level of debt
Growing margins
Stringent cost control and self-help measures
Shares are highly rated
Vulnerable to economic downturn
Nearly every building site in the UK is likely to have Marshalls' products piled up somewhere, and trading so far in 2019 has been encouraging. Sales were up 8 per cent in the first two months, or 16 per cent when including the Edenhall acquisition. What's more, from a reporting perspective, the company should now be lapping a period of very tough trading from last year caused by bad weather, so comparisons with 2018 should look very favourable.
Recent trading aside, a key attraction of Marshalls is the way it keeps a tight rein on costs. This has supported an impressive record of margin improvements over recent years (see table). Acquisitions and product development have also helped.
Edenhall, which has yet to be fully integrated, expands the product offering as it makes concrete facing bricks and will fit well with Marshalls’ existing mortars and screeds business. The purchase price of £16.4m contributed to a rise in net debt at the end of 2018 to £37.4m from £24.3m a year earlier, but this is likely to be substantially reduced thanks to Marshalls’ strong cash flows, with operating cash flow equating to 92 per cent of cash profits.
| MARSHALLS (MSLH) | ||||
| ORD PRICE: | 570.5p | MARKET VALUE: | £1.14bn | |
| TOUCH: | 570.5-572.5p | 12-MONTH HIGH: | 573p | LOW: 396p |
| FORWARD DIVIDEND YIELD: | 3.2% | FORWARD PE RATIO: | 19 | |
| NET ASSET VALUE: | 133p | NET DEBT: | 14% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)** |
| 2016 | 397 | 46.0 | 18.8 | 11.7 |
| 2017 | 430 | 52.1 | 21.1 | 14.2 |
| 2018 | 491 | 62.9 | 25.9 | 16 |
| 2019* | 544 | 67.5 | 27.7 | 16.5 |
| 2020* | 567 | 73.5 | 30.2 | 18 |
| % change | +4 | +9 | +9 | +9 |
| NMS: | 5,000 | |||
| BETA: | 0.78 | |||
| *Peel Hunt estimates Adjusted PTP and EPS **Includes special dividends of 3p a share in 2016 and 4p a share in 2017 and 2018 | ||||
Marshalls' self-help capital investment programme is expected to result in annualised cost savings of £5m. Steps taken include a new crushing plant, and investment in its own in-house logistics fleet, which helps to save costs on the 375,000 deliveries it completes each year.
Sales to the residential market comprise around 29 per cent of the total and have outperformed forecasts for the sector from the Construction Products Association (CPA), delivering 3 per cent growth last year. Sales growth in the second half was higher at 7 per cent, reflecting the recovery after earlier bad weather. Domestic installers remain busy, with order books of 10 weeks on average.
On the public sector and commercial side, which accounts for around two-thirds of group sales, revenue jumped by 20 per cent after including a full-year contribution from recently acquired CPM, a pre-cast concrete manufacturer specialising in underground water management work. The landscape protection business was also a strong performer. This supplies such items as protective bollards, railings and structures to protect people from road vehicles.
