Grafton Group Reports Profit Decline Amid Challenging Market Conditions
Why we think this is bad
Grafton Group's financial performance shows significant challenges, with adjusted operating profit falling 13.6% to £177.5 million and revenue declining 1.6% to £2,282.3 million. The adjusted operating profit margin before property profit contracted by 120 basis points to 7.6%, indicating pressure on profitability. While the company maintains a strong cash position and liquidity, the increase in net debt and the cautious outlook for key markets like the UK raise concerns. The improvement in H2 trading and positive performance in Ireland offer some consolation, but overall, the headwinds in multiple markets and the uncertain economic environment overshadow these positives. The medium-term outlook appears more promising, but near-term challenges persist, warranting a cautious stance.
Key Points
- Revenue decreased 1.6% to £2,282.3 million
- Adjusted operating profit down 13.6% to £177.5 million
- Adjusted operating profit margin before property profit declined 120bps to 7.6%
- Strong free cash flow of £178.2 million, 100% conversion rate
- Net cash of £272.1 million before lease liabilities
- Acquisition of Salvador Escoda in Spain for €128.0 million
- Final dividend increased by 2.8% to 26.5p per share
- Strong performance in Ireland, challenges in UK and other markets
- Cautious near-term outlook, positive medium-term fundamentals
- New £30 million share buyback programme announced
Summary
Grafton Group plc reported full-year results for 2024, showing resilience in a challenging environment. Revenue declined 1.6% to £2,282.3 million, while adjusted operating profit fell 13.6% to £177.5 million. The company maintained a strong free cash flow of £178.2 million, representing a 100% conversion rate. Despite headwinds, Grafton's diversified portfolio helped navigate difficult markets, with strong performance in Ireland offsetting challenges elsewhere. The acquisition of Salvador Escoda in Spain provides a new growth platform. Near-term outlook remains cautious, particularly in the UK, but medium-term fundamentals are positive. Broker targets suggest potential upside, with Berenberg Bank setting a target of 1,200.00p and RBC Capital Markets at 1,140.00p, both significantly above the current share price of 822.30p.