Cantillon: Belgian deal is right up Grafton’s street

The merchanting sector might not occupy the most glamorous end of the retail or wholesale sectors, but rumblings of a recovery seem to be adding a spring to the step of Grafton, the Iseq-grown group that last week defected to the FTSE.

It is presumably no coincidence that the company marked its London debut with the announcement, within days, that it was expanding in Belgium, that wealthy little country in the core of Europe. That’s the Europe where the economy is reportedly stabilising and where even German property is said to be getting boomy.

Grafton is buying a six-branch merchanting business based in Brussels for €50 million. The deal will neatly double the group’s exposure to the Belgian economy, thus delivering some appealing economies of scale. Crucially, it shows how the Irish company has the resources to be nimble, buying a business that hasn’t been trading brilliantly but is ripe for turnaround, and not paying over the odds in the process.

Being ready for improved conditions is crucial in any sector, with Grafton obviously seeing reason for optimism.

In the UK, where Grafton is the third-largest builders merchant, good news came this week from Revenue and Customs data showing a 23 per cent annual jump in housing transactions – house sales lead to repairs, which lead to merchanting sales. A further (somewhat controversial) support in the UK is coming from the government’s’s Help to Buy scheme, the second part of which is kicking off with guarantees for £130 billion in mortgages over three years. As in Belgium, the company picked up a struggling merchanting group in England a few months ago.

At home too, State intervention is positive for the merchants, with Michael Noonan’s extension tax reliefundoubtedly helpful for the sector.

Goodbody suggests Grafton is due to benefit from a combination of recovering markets, a strong balance sheet and “self-help” – the kind of approach that saw the company’s retail business Atlantic Homecare enter examinership last year and subsequently exit after renegotiating better deals on its leases.

Grafton has said the first half of this year delivered the first period of growth for the company since the same period of 2007. Its next trading update, due early next month, will be closely watched for further signals of cheer.