Grafton enjoys momentum with £2bn revenue forecast
Davy Stockbrokers has boosted its earnings outlook for Grafton Group as the building materials and DIY business benefits from good momentum in the sector.
Grafton is likely to generate revenue of £2.05bn this year, according to Davy, 2pc more than the broker originally forecast.
With Grafton having cut costs over the past number of years as the downturn hit, Davy said that its operational leverage means a 2pc increase in revenue will result in a 5pc rise in the expected trading profit for the year. Davy has already pencilled in a trading profit of £99m for Grafton in 2014, which would represent a 28pc increase compared to 2013.
Its revised earnings per share forecast for Grafton is 29.5p, which is 6pc higher than its previous estimate for the group.
"As we have observed in the past, relatively modest movements in revenues are likely to have a much more pronounced impact on profits," said analyst Flor O'Donoghue.
"This leverage is clearly now working in Grafton's favour; further volume-led upgrades are possible as we work through the year."
He pointed out that Grafton's share price has declined 4pc in the year to date and is 8pc lower than is 2014 high.
"This combination of a weaker share price and higher earnings has strengthened the Grafton investment case," he said.
"Grafton may still not look compellingly cheap based on existing estimates, but the operating and earnings momentum can help the stock test the 700p level by the end of the year."
Grafton shares are listed in the UK, where it generates the bulk of its business. In Ireland, it owns the Atlantic Homecare and Woodies DIY chains.