Does Grafton Group plc have growth potential after today’s update?

Could Grafton Group plc (LON:GFTU) (GFTU.L) deliver improving share price performance?

Grafton Group plc
Grafton Group plc

The Grafton Group plc (LON:GFTU) (GFTU.L) share price has risen by around 2% today after the company released a trading update for the 2018 financial year.

The builders merchanting and DIY company recorded a rise in revenue of 8.7%, with it increasing to £2.95 billion. Revenue growth in constant currency was 8.4%, with average daily like-for-like revenue growth of 4.3%.

As anticipated, the rate of revenue growth declined in November and December after strong growth in September and October. The company expects to report EBITDA for the 2018 financial year which is slightly above the top end of current analyst forecasts.

Grafton disposed of two small non-core UK businesses during the year. This is part of its strategy to improve returns, with the assets contributing revenue of £40 million and EBITA of £1.4 million (combined) in the 2018 financial year.

The Leyland SDM acquisition helped to boost organic growth during the year. The company also benefitted from its exposure to a variety of different geographical regions according to today’s update, as well as a diverse customer base.

In my view, Grafton is performing relatively well in a challenging market. There is uncertainty facing the UK economy and other regions at the moment, and this could continue over the medium term.

With the company forecast to post a 6% rise in EPS in the 2019 financial year, its strategy seems to be working well. Its diverse exposure to clients and regions could help it to offer relatively robust financial performance versus some of its industry peers.

With a P/E ratio of around 11, I believe that the stock could offer good value for money. Its stock price has been volatile in recent months, and this could continue over the near term. However, from a long-term perspective I’m optimistic about its investment potential on a relative basis.

About Robert Stephens 5430 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email or use one of the other contact methods available on the 'Contact Us' page