Shares in Grafton Group advanced on Thursday as analysts prepared to raise their forecasts for the builders merchanting and DIY group after it reported 16 per cent profit growth in the first six months of the year and signalled that the second half began on a strong footing.
Operating profit rose to £79 million (€85.7m) from £68.4 million for the same period last year, outpacing a 9 per cent sales increase.
The results were helped by euro strength against sterling and strong Irish merchanting revenue growth as chief executive Gavin Slark noted home construction was “gathering pace” after years in which the market had been driven by repair, maintenance and improvement (RIM).
However, Mr Slark told The Irish Times that he expected like-for-like merchanting sales across its Heiton Buckley, Chadwicks and Panelling Centre brands in Ireland to ease back to an annual growth rate of below 10 per cent in the second half of this year, following three consecutive years of "unsustainable" double-digit growth.
“Grafton’s first-half performance is better than expected,” said Davy analyst Flor O’Donoghue, adding that he expects to increase his full-year trading profit forecast by £3 million to £153.5 million, which would mark a second upgrade in as many months.
Analysts at Goodbody Stockbrokers and Investec also indicated that they plan to revise their estimates upwards .
Grafton said that its key UK merchanting business’s adjusted operating earnings, before property profit, increased by 6.8 per cent to £50.1 million as it benefited from restructuring last year when it closed 47 branches of its plumbing, heating and contracts business.
Expand
The division’s UK trade-only Selco Builders Warehouse business, which is geared towards small jobbing builders and which has traditionally been a robust performer even in a weak overall market, continued to expand during the reporting period.
However, Grafton Group warned that “recent softer trends in the UK economy are likely to be sustained over the remainder of the year”.
“The strength of housing starts should support house-building activity, while the residential RMI market is expected to be broadly flat with continuing competitive pricing conditions.”
Irish merchanting operating profit rose 44.1 per cent to £15.4 million, with strong sales growth in a recovering economy aided by currency translation benefits.
Merchanting earnings also expanded in the Netherlands, while the company’s weak Belgium business swung into a small operating profit of £400,000 compared to a £100,000 lost for the year-earlier period.
The group’s retail segment, comprised of the Woodie’s DIY stores in Ireland delivered 53.2 per cent operating profit growth to £4.7 million.
“Seasonal product categories including plants and shrubs, lawnmowers and pressure washers performed strongly, and Woodie’s continued to develop its kitchens business from dedicated showrooms in half of its estate,” it said.
Kitchen sales
Mr Slark said the group’s ongoing reformatting of Woodie’s stores and entry in recent years into kitchen sales were bringing in new customers.
The company said that rising Irish household spending would underpin the RMI and DIY markets, while “new housing and non-residential new build markets are still in the relatively early stages of a recovery that is expected to gather pace”.
Group average daily like-for-like sales growth was 6.5 per cent in the first two months of the second half of the year, driven by the Irish business.
Shares in Grafton Group rose as much as 2.9 per cent in London to £8, their highest level in more than two years.
