Grafton Group shares fall as conditions weaken in core UK market

Grafton chief executive Gavin Slark

Shares in Irish building products provider Grafton Group fell 3.5% after it said it has begun to see a weakening in its core UK market.

More than 90% of Grafton's annual revenues come from its UK builders' merchanting division. However, the group is also active in Ireland, the Netherlands and Belgium. As well as merchanting, Grafton's Irish business includes the Woodie's DIY retail chain.

Grafton is scheduled to publish its half-year financial results at the end of next month. Ahead of that, its latest trading update has shown that group revenue increased by 2.4% to £1.48bn (€1.64bn) in the first six months of the year. Like-for-like revenue was up by closer to 4%.

However, much of that year-on-year growth was driven by Grafton's Irish and Dutch builders' merchanting businesses, with 6.7% sales growth seen in Ireland and 5.4% growth in the Netherlands. Its retail division - essentially, Woodie's DIY - grew sales by 2.2%.

Grafton said market conditions in the UK were "softer than anticipated" due to weaker demand in the residential repair, maintenance and improvement and housbuilding markets. While still in growth mode, Grafton's core UK merchanting division only saw revenue growth of 1.4% in the first half of the year.

"Activity over the summer in the UK will be an important determinant of momentum entering the significant trading months of September through to November," said Grafton chief executive Gavin Slark.

However, Mr Slark said the group's profit expectations, for 2019 as a whole, remain "broadly unchanged" and will benefit from its recent purchase of Dutch company Polvo. He also said continued growth in the Irish and Dutch businesses is expected.

"Following a strong start to the year, Grafton saw some easing of trends in recent months. We expect a continuation of the positive trading conditions in our markets in Ireland and the Netherlands," he said.

Earlier this year, Mr Slark said Grafton would not be restricted to countries in which it already operates when looking for further acquisition opportunities. Further bolt-on acquisitions are expected in the Netherlands.

Grafton's shares have fallen around 10% in the past month, but analysts see the UK slowdown being temporary, Davy referring to it as a "speed-bump".

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