14th Nov 2023 13:25
(Alliance News) - Grafton Group PLC on Tuesday backed annual guidance, but it is its outturn for the next financial year that has analysts concerned.
The Dublin-based building materials distributor and DIY store chain operator reported revenue of GBP1.96 billion in the 10 months that ended October 31, up 1.7% from GBP1.93 billion a year before. In constant currency, however, the increase was only 0.3%.
Grafton said demand was subdued in the fourth months to the end of October, resulting in a marginal decline in average daily like-for-like revenue from a year before. This included "modest price deflation" in the Distribution businesses in the UK and Ireland.
Grafton operates about 360 branches in total of the Selco Builders Warehouse brand in the UK, the Chadwicks and Woodie's brands in Ireland, the Isero and Polvo brands in the Netherlands, and the IKH brand in Finland.
Looking to the full year, Grafton said it is on track to meet market consensus for 2023 operating profit, which it placed at GBP198.1 million. This would compare to GBP264.3 million, or GBP285.9 million on an adjusted basis, in 2022.
Analysts fear the tough market conditions it is seeing late in 2023 threatens to hurt 2024 too.
Irish broker Davy said: "It is clear that trading conditions have generally weakened even further recently. We think this will persist into the new year. Hence, we expect to reduce our expectations for next year although it is reasonable to argue that its low rating has already baked much of this in.
"Even so, that the company is on track to meet the full-year consensus expectation can be regarded as a positive outcome given there has been a number of peer profit warnings recently."
Davy rates the stock at 'outperform' with a 1,300 pence price target.
Peel Hunt also has a positive assessment on the stock, rating it at 'buy' with a 1,050p price target. It also noted the tricky outlook for 2024, however.
"There were no comments on the FY24 outlook, and consensus is currently forecasting a flat performance versus FY23, with risks skewed to the downside," Peel analysts commented.
Grafton shares fell 0.9% to 777.30 pence each in London on Tuesday afternoon.
By Eric Cunha, Alliance News news editor
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