Wednesday 26 October 2016

Grafton shares slump on margin pressures

Published 10/07/2015 | 02:30

Grafton chief executive Gavin Slark
Grafton chief executive Gavin Slark

Shares in Grafton Group fell more than 5pc at one point yesterday as it warned that despite a like-for-like revenue increase in the UK during the first six months of the year, its margins remain under pressure.

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The company, which in Ireland owns the Woodies DIY and Atlantic Homecare chains, generated 75pc of its £2.08bn (€2.9bn) revenue last year in the UK.

It said that during the first six months of this year, its revenue rose by 6.6pc to £1.08bn (€1.5bn). In constant currency terms, the figure was 9.5pc higher.

Its UK merchanting arm saw total revenue climb 9.6pc in the first six months of the year, with average daily like-for-like revenue growth of 4.3pc in the period.


While its Irish retail arm is just a small part of its overall business, Grafton said that the DIY chains recorded "modest" revenue growth and that action continues to be taken to improve the business.

Grafton said that its Irish merchanting business continued to perform "ahead of improving trends", with strong growth in the residential repair, maintenance and improvement market complemented by a modest recovery in housebuilding off historically low levels.

Despite the group's performance in the first six months, investors zeroed in on the margin pressure being experienced by the company.

Davy Stockbrokers noted that while a £6m gain on a property disposal during the period will ensure that Grafton hits its target of a £130m trading profit this year, there may be greater than expected weakness in the company's underlying business.

But Grafton chief executive Gavin Slark insisted that it was the "fundamental strength" of the group's strong brands and market positions, combined with operational improvements made in recent years, that despite the current challenges will help it deliver its medium-term targets.

Grafton also has a merchanting business in Belgium and a small presence in Poland.

Analyst Robert Eason at Goodbody Stockbrokers said that despite the minor decline in underlying performance experienced by Grafton in the first six months, the company's shares remain one of the broker's top picks in the sector.

He said that's because of the group's progress on self-help initiatives; exposure to the Irish recovery; and its "unique position" with regard to its acquisition potential.

Irish Independent

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