11th Jan 2023 15:19
(Alliance News) - Builders merchants Grafton Group PLC on Wednesday reported a nearly 10% rise in revenue in 2022, led by its businesses in Ireland and the Netherlands, and stockbrokers Davy said the Dublin-based company's shares have "considerable upside".
"Grafton's trading update confirms that 2022 overall was another successful and profitable year for the business," commented Davy Research.
Shares were 3.6% higher at 859.10 pence each in London on Wednesday afternoon, but are down 27% over the past 12 months.
Davy has a 1,300p price target on Grafton. Meeting that target would require a more than 50% climb, taking the stock a pound above its level a year ago.
Grafton noted favourable business trends in Ireland and the Netherlands but a slowdown in the UK. It also benefited from its summer 2021 acquisition of Finnish wholesaler Isojoen Konehalli Oy & Jokapaikka Oy, with revenue in Finland surging.
Grafton said revenue grew 9.1% to GBP2.30 billion in 2022 from GBP2.11 billion in 2021 and was up 40% from GBP1.64 billion in 2019. Citing good conditions in Ireland and the Netherlands, the company said revenue was "supported by good underlying demand and building materials price inflation" in the two countries. Its business in Ireland revenue grew by 14% while Netherlands revenue climbed by 16% in 2022 compared to 2021.
Revenue in Finland more than doubled. "The recovery in demand in the IKH workwear, tools and spare parts business that developed earlier in the second half gained further momentum in the final months of the year supported by generally resilient activity in end markets," Grafton said.
Meanwhile, trading conditions in the UK continued to soften amid a decline in volumes. Total revenue in 2022 grew by just 2.0%.
Retailing revenue in 2022 was down 14% in sterling terms from a year before.
For the period from November 1 to December 31, average daily like-for-like Retailing revenue was down 1.7% compared to a year before on a constant currency basis, though was up 20% on three years before.
In the same period, average daily like-for-like UK distribution revenue was down by 0.5% from a year prior on constant currency. In Ireland and the Netherlands, the same was up by 0.8% and 11%, respectively. In Finland, it was up 8.9%.
Most of the recent period was under a new chief executive officer. Eric Born, who has been in post for just six weeks, said he has spent that time visiting all four of countries where Grafton operates.
"I have been deeply impressed by the heritage and quality of our businesses and by the passion, drive and enthusiasm of our people as well as their extensive knowledge of our markets and customers," he said. "Together with my team, I look forward to building on these very solid foundations over the coming years."
Looking ahead, Grafton expects its 2022 adjusted operating profit before property profit to exceed the top end of analysts' forecasts of a range of GBP243.5 million to GBP249.5 million. The top end of the forecasts would be 8.0% lower than GBP271.2 million in 2021.
Davy said that, excluding property profits, it now expects Grafton's trading profit for 2022 to be around GBP253 million, which is 2.5% ahead of its previous forecast.
"This underlines that Grafton remains fundamentally in good shape," Davy said. "It has deepened its geographic operating base and remains supported by a rock-solid financial position."
The stockbroker noted that the stock trades on a multiple of 9x enterprise value to earnings before interest, tax and amortisation, which it thinks is too cheap. "There is a lot of negativity priced in," Davy said.
By Tom Budszus, Alliance News reporter, and Tom Waite, editor
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