Grafton Group warns on profits amid softer trading
Grafton Group updated the market on its third-quarter trading on Thursday, following the sale of Plumbase and its Belgian operations, reporting a 0.9% improvement in like-for-like group revenue in continuing operations, and a 4.5% rise in total revenue for the three months ended 30 September.
The FTSE 250 company said that following an encouraging start, trading towards the end of the quarter and more recently had been impacted by a softening in activity.
Volumes in the UK merchanting business were affected by weak underlying demand fundamentals, as households reportedly deferred discretionary spending on home improvement projects against the backdrop of increased economic uncertainty.
While the Irish economy continued to benefit from positive momentum, Grafton said there was some slowing in demand in the merchanting and DIY markets, as consumer sentiment eased in response to a more cautious international outlook.
Despite generally favourable conditions in the Netherlands merchanting market, demand was affected by a court ruling on nitrogen emissions, which had delayed the grant of permits for new construction projects.
Group revenue from continuing operations for the nine months to 30 September increased by 3.6% to £2.03bn, and by the same rate in constant currency, while like-for-like group revenue was ahead 3.1% in the period.
Grafton said that against the backdrop of softer third quarter trends which had continued into October, it as currently expecting to report full-year operating profit for continuing operations in the range of 4% to 8% lower than current consensus.
“Recent trading conditions are more reflective of market sentiment than business fundamentals,” said chief executive officer Gavin Slark.
“Grafton remains well placed to continue to benefit from our strong market positions in Ireland and the Netherlands and from a recovery in the UK merchanting market.
“The group continues to focus on optimising trading opportunities in its markets, on cost control and cash generation and has a strong balance sheet to support value enhancing acquisition opportunities.”
Peel Hunt lowered its recommendation on Grafton Group stock in the wake of the update, to 'hold' from 'add'. and revised its profit before tax forecasts for the 2019 financial year by around 10% to £165m.
For the 2020 financial year, the broker reduced its profit before tax forecast to £173m from £191m.
"The shares have rallied strongly in recent weeks - up 17% in the last month)," Peel Hunt said.
"We reduce our target price to 800p from 860p, and move our recommendation back to hold from add."
As at 1115 BST, shares in Grafton Group were down 8.21% at 797.66p.