What made Grafton Group to acquire wooden staircase maker for £44 million? - Kalkine Media

December 02, 2020 03:15 PM GMT | By Hina Chowdhary
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Summary

  • Grafton Group Plc has reported a revenue increase of 4.7% for the four months ended on 31 October 2020.
  • The Company will acquire StairBox Ltd. for £44 million in cash and on a debt-free basis.
  • The Company is expecting its adjusted operating profit to grow by 24% to 33% year-on-year for FY20.

Grafton Group Plc (LON: GFTU) is the LSE listed industrial Company. Based on 12-months performance, shares of GFTU have generated a return of 7.08%. Shares of GFTU were down by close to 1.45% from the last closing price (as on 02 December 2020, before the market close at 08:10 AM GMT).

Grafton Group Plc is the FTSE 250 listed company, which distributes building material and provide retailing of DIY present across UK, Ireland and the Netherlands. The reportable business segments are Distribution, Retailing and Manufacturing.

Building material market Overview

The building material manufacturers provide materials which can be used for construction and include the different category of materials. Building materials can be bifurcated into naturally-occurring materials such as wood and timber, and human-made substances such as cement and glass.

Recent Developments

01 December 2020 – Acquisition of StairBox

On 01 December 2020, the group announced the information regarding its acquisition of StairBox Ltd. The Group is going to pay £44 million on a cash and debt-free basis including £4 million that is deferred until November 2022 for this deal. The acquisition of StairBox is going to align with the strategy of acquiring high-quality specialist businesses with lucrative returns.

FY20 Trading Update (the four-month period ended on 31 October 2020) as on 12 November 2020

The Group has given a trading update for its four months ended on 31 October 2020 and mentioned that trading went ahead of expectations.

(Source: Group website)

  • The Group has reported a 4.7% increase at constant currency in revenue for the four months ended on 31 October 2020 to £1.0 billion while it was £962.0 million for the same period in the prior year.
  • The revenue for the retailing business segment went up by 41.4% for the four months ended on 31 October 2020 due to exceptional demand experienced in Woodie's DIY, home and garden business in Ireland.
  • The revenue for the UK distribution segment surged by 2.3% on a like-for-like basis. It was affected during H1 FY20 due to Covid-19 pandemic. The RMI (repair, maintenance and improvement) segment has demonstrated decent recovery and shown increased spending by households.
  • The revenues for the manufacturing business segment remained lower as housebuilders focused initially on completing those houses that were already going through construction post the reopening of sites.

The Group had liquidity of £783.2 million as of 31 October 2020 out of which £423.2 million was contributed by accessible cash and £360.0 million as undrawn revolving bank facilities. 

H1 FY20 results (ended 30 June 2020) as reported on 27 August 2020

 

(Source: Group website)

  • The Group has reported a decline in revenue of 29.0% to £1,058.0 million in H1 FY20 ended on 30 June 2020 from £1,483.0 million for H1 FY19. Similarly adjusted operating profit declined by 63% year-on-year to £39.4 million during H1 FY20 ended on 30 June 2020 from £104.5 million for H1 FY19.
  • Regarding the financial position, the Group was able to reduce its net debt to £479.2 million as of 30 June 2020, reflecting decent cash generation capability. The Group has generated £121.5 million of cash flow from operations during H1 FY20 while it was £157.2 million in H1 FY19.
  • The Group had liquidity of £693.4 million at 30 June 2020 while it was £628.6 million as of 30 June 2019.
  • Return on capital employed has declined from 10.4% in H1 FY19 to 7.8% in H1 FY20.

 

Share Price Performance Analysis of Grafton Group Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Grafton Group Plc were trading at GBX 886.50 and were down by close to 1.45% against the previous closing price as on 02 December 2020, (before the market close at 08:10 AM GMT). GFTU's 52-week High and Low were GBX 997.00 and GBX 356.00, respectively. Grafton Group Plc had a market capitalization of around £2.03 billion.

Business Outlook

The Group is expecting to deliver more than expected operating profit for the second half of FY20. The Retailing and RMI activity generates higher gross margins than housebuilding and commercial construction gross margin over the last four-months period ended on 31 October 2020. The Group is expecting its adjusted operating profit to grow by 24% to 33% year-on-year for H2 FY20 and to remain in the range from £130 million to £140 million assuming no further material disruptions caused by Covid-19 pandemic.

 

 


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