Grafton raises 2021 profit forecast for second time in two months

Grafton Group, the building materials distributor and DIY retailer, has raised its 2021 operating profit forecast for the second time in two months as it benefited from ongoing inflation across its products and an easing of supply chain pressures as the year came to an end.

The owner of the Woodies DIY retail brand in Ireland said in a trading update on Wednesday that it now expects to post an operating profit of £276.3 million (€331.5 million). It marks an improvement from the guidance of £265 million-£270 million issued in early November, which itself was as much as 5.5 per cent ahead of consensus market expectations at the time.

“The positive revenue growth trends reported for the four months to the end of October continued through to the year-end, driven by the group’s strong brands and market positions against the backdrop of generally favourable trading conditions,” the Dublin-based, but London-listed company said.

“While supply chain pressures moderated, building materials price inflation continued to be a key component of revenue growth in the distribution businesses particularly in the UK and Ireland.”

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‘Positive’ outlook

Group chief executive Gavin Slark said the company's outlook "remains positive and we look to the future with confidence given the strength of our businesses, strong balance sheet and good pipeline of investment opportunities".

Group total revenue from continuing operations, which excludes the traditional merchanting business in Great Britain that was sold last year, increased by 25.7 per cent to £2.11 billion in 2021 from the previous year. It was also up 28.4 per cent on 2019, before the pandemic.

Grafton agreed a deal in July to sell its long-underperforming British traditional merchanting business, including the Buildbase, Timber Group and Bathroom Distribution Group brands, for £520 million to Welsh-based peer Huws Gray, which is controlled by US private equity giant Blackstone. The deal was completed in December.

Like-for-like sales in its UK distribution business, now mainly comprised of the Selco Builders Warehouse brand network that is geared towards smaller jobbing builders, rose 30.3 per cent in 2021 on the year and were up 20.5 per cent on 2019.

Its Irish distribution unit, trading under the Chadwicks banner, delivered 17.3 per cent revenue growth, while its Dutch business saw sales rise 5.1 per cent on the year.

The retailing division, comprised of the Woodie’s DIY, home and garden business in Ireland, which was classified as an essential retailer and remained open during the national lockdown earlier this year, saw its revenue growth moderate following the reopening in May of non-essential retail and leisure activities. Still, revenues at the unit were up 14.7 per cent on the year, and were almost 38 per cent ahead of the same period in 2019.

Last year also saw Grafton acquire Finland based IKH, one of that country’s largest workwear and personal protective equipment, tools and accessories technical wholesalers and distributors, for €199.3 million, a move that gave Grafton a presence in Scandinavia for the first time.

“The year marks a key milestone in the strategic development of Grafton. With a structurally improved returns profile and an enviable balance sheet to pursue its growth ambitions we see material upside to the share price,” said Goodbody Stockbrokers analyst David O’Brien. The stock closed on Tuesday at £11.78, up 26 per cent on where it was changing hands 12 months ago.