Grafton Group shares rose the most in four months on Tuesday as the builders merchanting and DIY group posted better-than-expected first-half sales, driven by the UK where its Selco Builders Warehouse business that caters for small jobbing builders stood out as a bright spot.
Shares rose by as much as 5.9 per cent in London in early trading to £7.50 (€8.49) each, before closing off their highs, at €7.19.
Total like-for-like sales increased by 5.9 per cent in the second quarter, up from 5.5 per cent for the previous three months, bringing the figure for the first half to 5.7 per cent, the Dublin-based group said in a trading statement on Tuesday. Goodbody Stockbrokers had forecast 4.8 per cent first-half growth.
While chief executive Gavin Slark said the trading performance was “better than we anticipated” and the group remains optimistic on the medium-term outlook for the UK, its key market, “we remain cautious about the shorter term impact of current uncertainty and pressure on real incomes which may temper growth” in housing renovation and maintenance.
In the UK, merchanting sales growth expanded to 4.7 per cent from 4.4 per cent over two quarters, while they fell back to 10.2 per cent from 14.6 per cent in Ireland and the Belgian business returned to growth the three months through June. Dutch sales growth for the first half came to 4.3 per cent.
Operating performance
“We expect the wider sector [in the UK] to be reporting material year-on-year declines during this reporting period, which is in complete contrast to the operating performance of Grafton,” said Goodbody analyst Robert Eason, who estimates the group posted 10 per cent earnings growth in the first half.
“This statement clearly underscores the benefits of Grafton’s differentiated business model relative to peers.”
Grafton’s Selco business, whose niche market has a track record of performing better than the wider merchanting sector, delivered “double digit” revenue growth in the first half as six branches were added, bringing its network to 54 locations.
“The traditional UK merchanting businesses reported good like-for-like revenue growth and also benefitted from the restricting implemented in the last quarter of 2016,” Grafton said.
Grafton incurred an almost £20 million restructuring charge last year as it closed 47 branches of its UK plumbing, heating and contracts businesses.
Sales growth
In Ireland in the first six months of this year, while merchanting sales growth eased in the second quarter from the first, the group “outperformed a recovering market where it has a strong leadership position,” Grafton said.
Retail sales, comprised of the group’s Woodies business in Ireland, grew by 8.1 per cent in the second quarter, compared to 4.4 per cent in the first three months of the year, driven by employment and income growth and a later Easter.
Group sales rose 9 per cent to £1.34 billion in the first half, helped by sterling weakness. Excluding currency effects, sales increased by 6.2 per cent.
Davy analysts Michael Mitchell and Flor O’Donoghue said in a note to clients that they plan to raise their full-year earnings forecasts for Grafton by as much as 3 per cent, even though the group has not revealed interim earnings at this stage.
