12th Jul 2023 11:45
(Alliance News) - Grafton Group PLC on Wednesday touted the benefits of geographical diversity, with market analysts pleased to see no downgrades to its outlook.
In a trading statement ahead of the release of its interim results, the building materials firm and DIY retailer said it was backing annual guidance.
According to company-compiled consensus, analysts see operating profit at GBP205 million in 2023, within a range of GBP194.6 million to GBP223.0 million, which would be between a 26% and 16% decline year-on-year from GBP264.3 million.
Whilst this guidance would not ordinarily be considered particularly impressive, it comes amid a weak market backdrop in construction.
"That Grafton has reiterated full-year expectations is something of a stand-out in the building distribution sector at present," said Davy Research.
"That it can do so is, amongst other things, a testament to the diversity of the group's operating platform."
Grafton operates across merchanting, retailing and manufacturing segments. It owns UK builders' merchant brands Buildbase, Selco and Jackson, as well as Irish home improvement retailer Woodie's DIY.
Over the first half, it said 60% of its revenue was generated in Ireland, the Netherlands, and Finland.
Its CEO Eric Born said the company has a "high-quality cash generative businesses" which operate in "diverse markets" with "attractive" demand fundamentals.
Shares in the FTSE 250-listed company rose 3.7% to 790.60 pence each in London on Wednesday.
"Grafton's depressed rating has arguably been pricing in a downgrade to earnings and hence, the update should be well received," Davy said.
Grafton said its performance in the first half of 2023 was in line with expectations, with revenue up 3.2% to GBP1.19 billion from GBP1.15 billion the year prior.
Average daily like-for-like revenue in the second quarter was slightly stronger against the prior year than the performance in the first quarter, it added.
Volumes in the distribution businesses in Ireland, the UK and Finland were lower in the first half, Grafton said, reflecting the impact of cost-of-living increases and rising interest rates. Volumes in the Netherlands meanwhile were broadly unchanged.
Davy analysts commented: "We understand that price inflation continued to impact, albeit at much more moderate levels, as steel and timber prices in particular eased.
"Of note is the excellent Q2 result in Ireland Retailing, helped by demand for seasonal products, while Ireland Distribution was weaker in the second-quarter, impacted by weaker demand for housing [renovation, maintenance & improvement] projects and single-home build."
Grafton's overall retailing segment saw 14% average daily like-for-like revenue growth in the second quarter, compared to the previous year. Whereas Irish merchanting saw a 4.5% decline across the same period.
"The group is trading on a 2023 [price to earnings] multiple of not much over 10.5 times and just 8 times adjusted operating profit. This is unwarranted, particularly given the enduring strength of the asset base and the fortress balance sheet," Davy said.
The broker holds the stock at 'outperform', with a target price of 1,300p.
Grafton will release its full interim results on August 31.
By Elizabeth Winter, Alliance News senior markets reporter
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