Grafton profits ahead of forecasts

BUILDING supplies company Grafton’s better that expected 32% surge in pre-tax profits is forcing stockbroking analysts to increase full-year forecasts for the company by anything up to 10%.

Yesterday, Grafton which became the fourth largest builders merchant in Britain earlier this year after buying the Jacksons chain, posted a 32% jump in pre-tax profit to €41.7 million in the six months to end of June. Adjusted earnings per share increased by 25% to 19.63 cent.

This was well ahead of market expectations and within hours of the results Davy, Goodbody and Merrion stockbrokers all indicated that they would be updating their forecasts on the group which derived 74% of its €706.5m turnover in Britain with the remainder coming in Ireland.

Brokers were also pleased with the bullish remarks of chairman Michael Chadwick who in a statement accompanying yesterday’s results said: “We are confident of continued profitable growth through organic development and acquisition and expect profitability and earnings in the second half to be ahead of last year. The group is well funded to continue its acquisition programme and has a healthy pipeline of attractive acquisition and development opportunities going forward.

The company said turnover in Britain, its most important market, grew by 41% to €523m and represented 74% of group turnover (2002: 69%).

“UK operating profit, before goodwill amortisation, increased by 54% to €35.6 million contributing 67% of group operating profit (2002: 61%).

The firm’s buoyant performance was mirrored by first-half results from larger British rival Travis Perkins, which posted a 22.4% leap in pre-tax profit as British residents continued a building drive amid favourable weather.

Grafton’s DIY chain in Ireland has also benefited from the continued housing boom, where operating profit before goodwill rose 40% to €53.4m with an improved margin of 7.6% (7.1% previously) while sales for the six months were up 32% to €706.5m.

Operating profit in Ireland grew 19% to €17.8m, while in Britain and the North it was up 54% to €53.4m.

Merrion analyst John Mattimoe said: “The group’s strategy and the prospects for strong integration benefits from Jackson (and any further acquisitions) underpin the prospects of Grafton delivering mid-teen annual EPS growth in the medium term. These results reinforce our confidence in this, including at least mid-teen growth likely this year, notwithstanding the dilution from the rights issue. Buy.”