Its track record has several dark spots; however, the company had a good last year an EPS growth of 20.9% while Operating Profit jumped 16.4%. http://bit.ly/1TZfZKq
Recently, David Arnold the CFO and Paul Smith Non-Executive Director collectively bought 23,226 shares.
Housing recovery boosts Grafton
By Stephen Wilmot,
28 August 2013
The trend in Grafton's (GFTU or IE: GN5) half-year results is very encouraging, doing something to underpin the 63 per cent year-to-date gain in the builders' merchant's share price. Like-for-like sales in the UK wholesale business - which provides the overwhelming majority of Grafton's profits - were virtually flat in the first four months, but then increased by 4.7 per cent year on year in May and June and 5.5 per cent in July and August (to date).
Chief executive Gavin Slark admits the sun may have something to do with this apparent bounce. "It's very early to call a trend in the recovery. The weather has been much better this summer," he warns. On the other hand, growth in mortgage approvals and housing transactions - historically leading indicators for the kind of repair and maintenance activity that help builders' merchants - suggests the good news may continue.
The group's first-half numbers were also boosted by cost-cutting. Grafton is the top DIY store in Ireland, and this business managed to turn a 3.5m (£3m) operating loss a year ago into a 0.3m profit despite a 3.4 per cent fall in sales. At the group level, underlying operating profits were up 17.1 per cent to 36.6m. The reported numbers are skewed by a one-off pension credit - the result of a renegotiation of terms for the group's defined-benefit schemes.
Pending upgrades, broker Davy expects full-year pre-tax profit of 73.4m, giving EPS of 25¢ (from 33.5 and 17.7¢ in 2012).
ORD PRICE: 640¢ MARKET VALUE: 1.48bn
TOUCH: 640-641¢ 12-MONTH HIGH: 643¢ LOW: 302¢
DIVIDEND YIELD: 1.4% PE RATIO: 19
NET ASSET VALUE: 430¢* NET DEBT: 17%
Half-year to 30 Jun Turnover (bn) Pre-tax profit (m) Earnings per share (¢) Dividend per share (¢)
2012 1.06 15.8 4.84 3.00
2013 1.07 60.5 20.6 3.50
% change +1 +283 +326 +17
Ex-div: 4 Sep
Payment: 4 Oct
*Includes intangible assets of $569m, or 245¢ a share
Grafton's shares now trade on 26 times forecast earnings. That multiple should decline as upgrades come through, but it doesn't leave much room for error, or a market wobble. Hold.
As I predicted, this has evidently not flown off the shelves. Instead of closing early, like many recent retail bond issues, Redmayne-Bentley have today sent out a round robin trying to drum up interest before Monday's closure date.
Having said that, the Grafton Group bond looks positively attractive compared with the latest offering by R-B of a 6% bond from an unlisted company! I would want 7.5% minimum for that one!!
Just seen the announcement of a new 5.5% Retail Bond 2020 from Grafton Group.
My immediate reaction is that, given the fall in retail bond prices recently, a 5.5% coupon is not enough to attract me to invest. A number of retail bonds with a 6.0-6.5% coupon are trading around par at the moment. Also, Grafton Group is not exactly a household name (in the UK anyway, perhaps in Ireland) and so doesn't seem to me to be entitled to offer a lower coupon as a premium brand.
Im not saying they won't make their target, but I'll be surprised if it's snapped up in the way that the recent Helical Bar issue was.
IMO this is over valued currently at around 28 P/E. Grafton is a great company, but I feel with TPK and WOS getting their acts together in what is currently a very flat and fluctuating sector will mean its slim pickings for all.
The recent housing scheme announced by the government to prop up the property bubble in the UK will take a while to filter through but it still raises the question of are houses really affordable even with the 5% deposit, I dont think so where I am.
I see a downwards correction over the next few months in the SP.
Good post. I couldn't quite understand why this has shot up in the last 6 months, the growth in the business does not seem to reflect the rally.
On the shop floor (in the UK at least) Graftons have been reducing stock levels and selling off unwanted lines by means of large discounts to customers and incentives to staff. Retailers do this from time to time of course and whilst old stock is effectively dead money, it's not something that is a sustainable profit driver in the future.
I'm not sure where this will go from here. Hold, wait and see for the results in a week or so.
2013 The Great Irish Share Valuation Project (Part VI)
Company: Grafton Group
Prior Post: Here
Price: EUR 4.80
I saw significant upside for Grafton last year, but nothing like the near-doubling in the share price weve actually seen. I guess investors now see a tipping point, with UK revenues slowly & steadily advancing, and Irish revenue decline now limited to low single digits. To me, that seems a little too enthusiastic I was certainly positive on the stock, but that was based on a sustained rebuilding of margins (complemented by hefty operating free cashflow (Op FCF)), rather than a sudden acceleration in revenues.
And the recent surge in EUR/GBP spells looming trouble for revenue & earnings 75% of Graftons revenues now come from the UK, but it still reports in EUR. If the current 0.86+ rate (or even 0.88+) is sustained, dont be surprised to see Grafton suggesting a GBP re-denomination later this year. And if theres scope for a UK index admission, they might just go the full hog & dump their Irish listing in favour of the UK.
Meanwhile, they continue to keep their heads down, and are making steady progress. Their latest trading statement confirms revenues of EUR 2.17 bio for 2012, and an adjusted operating margin of not less than EUR 70 mio. I think its reasonable to expect Op FCF will continue to run well in excess of that, which suggests a FY Op FCF margin of 4.3%. This now puts interest coverage within tolerable levels, with further improvement to come.
At worst, I think any 2013 currency impact will be glossed over as a once-off at best, it wont even be an issue. Continued progress on revenue & margins will absorb some of the brunt anyway. I think its reasonable to stick with my existing investment thesis Grafton will eventually build Op FCF margins back up towards peak levels (around 7%). This will be achieved through further rationalization, and slow but steady growth. Acquisitions will likely feature again, fairly soon, once confidence improves further & the company frees up some cash/debt capacity. Averaging current & prospective margins, an improved 0.5 Price/Sales ratio seems justified Grafton appears to be fairly valued right now.
Just posted Part II of The Great Irish Share Valuation Project on my blog. I'm setting a Fair Value Price Target for every listed Irish company. So far I've valued 2 dozen companies, including Grafton Group:
Gubu..hi..thats very good credit control for you. Some companies lost the plot and let it slip..much to their detriment! Thats a good story there. Chadwick certainly had the guy on a leash! :-)
I remember seeing the list of the largest bad debtors on the grafton results presentations. They always seemed to have a good grasp on the situation and more importantly were very upfront about it. all the best.
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