Grafton primed to benefit from construction upturn
Grafton Group could still boost profit and sales further, according to Davy Stockbrokers, which has raised its rating on the stock to outperform.
The higher rating comes as UK peer Kingfisher, which owns B&Q and Screwfix, said that like-for-like sales in the UK and Ireland rose 2.6pc in the third quarter but that profits in France - its biggest market - slumped 14pc.
Davy analyst Flor O'Donoghue said that since the beginning of 2014, the firm has raised its earnings forecasts for Grafton by more than a fifth.
He described Grafton, which owns the Woodies and Atlantic Homecare DIY chains here but which generates 75pc of its business in the UK, as a "clear stand-out" in a peer group in which earnings estimates are starting to come under pressure.
"While the pace of appreciation will inevitably taper, we believe there is scope for further earnings expansion in 2015/2016 above what current forecasts suggest," he added.
Mr O'Donoghue noted that Grafton's share price had barely budged since the beginning of the year. He predicted that earnings could rise further by between 13pc and 37pc.
"Grafton enjoyed a spectacular jump in earnings as it came off a highly depressed base, but the hurdle is now becoming much more demanding," he said.
He said Grafton shares could be worth over £8.50 each if the earnings momentum continues and returns continue to improve. The stock, which is traded in London, was changing hands at £6.24 yesterday.
Headed by chief executive Gavin Slark, Grafton said this month that its revenue in the 10 months to the end of October rose 10.1pc to £1.76bn (€2.2bn), boosted by strong demand in the UK in particular.
It said the pace of growth had moderated in the four months to the end of October, however.
Mr O'Donoghue believes that while Grafton's business in Belgium accounts for just between 3pc and 4pc of its revenue, there is scope for further expansion.
"Grafton is now the number one player in this market and in a short period of time has established a strong franchise in the region with scope for further expansion," he said.
In Ireland, where Grafton also operates a builders merchanting arm, Mr O'Donoghue said he believes that the company is "uniquely positioned" to benefit from a normalisation in the construction sector, which is still some way off.
Accounts recently filed for B&Q Ireland show it made a €1.4m loss during its last financial year, down from a €26m loss it made the year before when it emerged from examinership and restructured.