Marshalls interims pave way for faster full year growth

A strong set of interim results from paving slabs specialist Marshalls showed sales growing faster than the wider construction market, leading to analysts upping expectations for the full year.

Revenues of £199.1m in the half-year to 30 June were 11% higher than the same period last year, versus rouhgly 5% growth in underlying markets, indicating a strong level of market share won so far this year as the group invested in new products and overseas growth.

Earnings before interest, tax, depreciation and amortisation jumped 34% to £29.7m and profits before tax surged 48% to £20.8m.

Operating margins rocketed up to 11.1% in the six month from 8.7% in 2014, reflecting improved operational gearing as a result of the market-beating volume growth.

Volume growth has been particularly strong in the public sector and commercial end market, where the revenue increase attributable to volume and mix has been 11%.

A higher tax charge meant basic earnigns per share were only 39% higher at 8.5p, while the dividend was lifted a quarter of a penny to 2.25p.

Chief executive Martyn Coffey said the group was well positioned to grow organically and through selective through acquisitions, with growth remaining the focus during the remainder of 2015 and in 2016.

He pointed out that the Construction Products Association had predicted growth in UK market volumes of 4.9% in 2015 and 4.2% in 2016.

"In order to drive growth, the group continues to develop the Marshalls brand and invest in product innovation and service delivery initiatives to deliver improved trading margins and increased return on capital employed," he said.

Marshalls has noticed a good historical correlation between consumer confidence and domestic installer order books, highlighting a survey of domestic installers at the end of June 2015 that revealed continuing strong order books of 12.0 weeks, up from 11.5 weeks last year and 10.6 weeks at the end of April 2015, to its the highest recorded order book at this time of year.

The international business, included 15.8% growth from the Belgian operations in local currency despite a mainly subdued market, while a sales office is being opened in Dubai to focus on the wider Middle East market.

Investors and analysts were impressed, with shares in Marshalls up 5.8% to 334.91p by 08:45 on Friday.

Shore Capital said that with markets still not firing on all cylinders, with domestic spending expected to flow through and provide a step up in market volumes a little later in the cycle.

"If revenue growth can be carried through the second half at the same rate as the first and the same operational gearing delivered then it looks likely that the current consensus PBT to Dec 2015 of £32.5m will be beaten."

Numis noted that net debt has also been reduced appreciably and that PBT in the first half PBT was ahead of its estimates of £19.6m. Due to the strength of the results and the confident outlook statement it is increasing pre-tax estimates for the full year to £34m from £32.6m, with EPS upped to 13.8p from 13.3p.

"With Marshalls still holding considerable spare capacity and volumes still well down on pre downturn levels, high levels of operational gearing and therefore profit growth, should continue. Due to the increased forecasts we increase our target price to 350p."