12th Aug 2024 11:52
(Alliance News) - Marshalls PLC should benefit from an improving economic backdrop despite challenging markets in the first half of the year, analysts said.
On Monday, the Yorkshire, England-based landscaping products maker reported a weaker half-year revenue performance, though this was more than offset by cost cutting.
Marshalls shares were down 1.0% to 336.73 pence each on Monday in London. They had earlier traded as low as 322p.
Marshalls said pretax profit rose 29% to GBP21.5 million in the first half that ended June 30 from GBP16.7 million the previous year.
Revenue fell by 13% to GBP306.7 million from GBP354.1 million, but net operating costs were cut by 15% to GBP277.8 million from GBP327.3 million.
Marshalls net financial expenses were down 27% to GBP7.4 million from GBP10.1 million, as net debt was cut 16% to GBP155.8 million from GBP184.6 million.
The interim dividend was maintained at 2.6 pence per share.
Chief Executive Matt Pullen said: "The group has delivered a resilient performance in weak end markets.
"The result in the first half is encouraging and demonstrates that the strategy of diversification, building on the group's historic core Landscape Products business, through the acquisition and improvement of less cyclical businesses in recent years, has resulted in a more balanced group."
The company's key end markets of new build housing and private housing repairs, maintenance and improvements were weak in the first half compared to last year, Marshalls said.
Revenue fell across all segments, with Landscape Products declining 21% to GBP137.0 million, Building Products declining 6.2% to GBP81.8 million, and Roofing Products declining 5.3% to GBP87.9 million.
"The medium-term outlook for the UK construction industry is positive, and we anticipate a progressive recovery in 2025 that is expected to accelerate in 2026 through 2029. This is further supported by the new [UK] government and its stated mission to get Britain building again, with a commitment to build 1.5 million new dwellings in this parliament.
"We are confident that this more positive macro-economic backdrop will drive future growth for all our businesses," Marshalls said.
Analysts at Davy Research noted the first half was always likely to be challenging for Marshalls, given that its core end markets, new-build residential and private housing RMI have remained subdued.
Davy noted revenue in the period suggested a slight worsening in May and June.
But the broker highlighted the group is increasingly focused on a return to growth in 2025 and believes that it has right-sized the business to benefit from a growing volume environment.
Davy also pointed to "controlling the controllables", with the group displaying a "very strong performance in reducing debt".
Davy has a 'neutral' rating on Marshalls.
Peel Hunt said it was making minor tweaks to earnings forecasts following the results. The broker has trimmed financial 2024, 2025 and 2026 pretax profit forecasts by GBP1 million, GBP1 million and GBP2 million respectively.
Peel Hunt explained the shares are trading on around 18x 2025 "depressed earnings".
"We estimate this to be equivalent to about 10 to 11x recovered earnings, which have the potential to double versus 2024," it suggested.
"We increase our [target price] from 310p to 380p to reflect the improved macro backdrop and the increased likelihood of a cyclical recovery, and we retain our buy rating," Peel Hunt added.
By Jeremy Cutler, Alliance News reporter
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