Grafton set to beat profit forecasts as revenue rises

Grafton Group said operating profit for last year is set to exceed forecasts as the building materials firm saw revenue increase and the group ended 2022 in a strong financial position.

Full-year operating profit was expected to end the year slightly ahead of analysts’ forecasts, the company said, as it issued a trading update for the period between November 1st and December 31st.

Group average daily like-for-like revenue showed growth of 2.6 per cent in the final two months of the year, ahead of the 1.8 per cent recorded in the four months to the end of October. Revenue was up 9.1 per cent to £2.30 billion (€2.5 billion) in 2022.

“It is pleasing to note that despite mixed macroeconomic and market conditions, we expect full-year operating profit to be slightly ahead of the top end analysts’ forecasts for 2022,” chief executive Eric Born said. “We look to the future with confidence, supported by our market leading businesses and very strong financial position.”

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More than half of the group’s revenue is generated in Ireland, the Netherlands and Finland. Its distribution businesses in Ireland and the Netherlands showed good underlying demand, while trading conditions continued to soften in the UK. Chadwicks was supported by good underlying demand in the residential new build and repair and maintenance markets, despite pressure from building materials price inflation, tight labour markets and higher interest rates.

In the DIY, home and garden business, where Grafton operates the Woodie’s brand, trading “normalised” after the pandemic years and was marginally down on the prior year. Exceptional pandemic-related gains had reversed amid more cautious discretionary spending ahead of the Christmas season, the company said.

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The trading update “confirms that 2022 overall was another successful and profitable year for the business”, Davy analyst Flor O’Donoghue said in a research note. “The year has been bookended with the good news that operating profits will come in above expectations.”

Property profit was ahead of guidance at about £24.5 million, including an unrealised gain of about £4.5 million on the remeasurement of a number of investment properties to fair value under IFRS rules.

The group carried out a second share buyback during the period under review, with a £4.4 million share repurchased at a cost of £35 million.

Mr Born succeeded long-time boss Gavin Slark at the end of November. Mr Slark was set to remain with the group until December 31st to facilitate an orderly transition.

“Grafton remains fundamentally in good shape,” Mr O’Donoghue wrote. “It has deepened its geographic operating base and remains supported by a rock-solid financial position,” he added.

Lower activity in the new housing market in the UK slowed revenue growth in the UK manufacturing business. That lower activity appears set to continue for some time to come. In a separate statement on Wednesday, UK homebuilder Barratt Developments said it has seen a sharp slowdown in sales rates as high borrowing costs and the threat of a house price plunge combine to undermine the property market there.

The average number of weekly private sales at Barratt’s sites has more than halved, leading the firm to warn that it could deliver fewer homes than expected, according to the statement. With a seasonal uptick in demand in the spring, it will still complete 17,475 homes, but without that the figure could be 16,000-16,500 homes in 2023. – Additional reporting: Bloomberg