Today’s interim results from building products, systems and solutions group Alumasc (LSE: ALU) show that it performed well in the six months to 31 December. In particular, it posted strong revenue growth of 17%.
Could this small cap, which provides premium products and often bespoke solutions in high-growth niches, be a more resilient performer through construction and housebuilding cycles than general housebuilder and FTSE 100 giant Persimmon (LSE: PSN)?
Lucrative growth
Despite Alumasc’s impressive 17% rise in revenue, up to £50.7m from £43.5m in H1 last year, the increased cost of imported materials following the depreciation of sterling over the last six months impacted on margins. Underlying pre-tax profit increased just 2%, rising to £4.1m from £4.0m.
However, management said selling-price increases and operational gearing, driven by strong growth in revenues, will see stronger margins in H2.
I like Alumasc’s collection of businesses. In particular, Levolux, its solar shading and screening business, is growing fast. It achieved revenue growth of 46% to £11.1m. Notably, this business is experiencing strong demand in North America, which looks set be a lucrative market for the future.
Levolux accounts for the majority of Alumasc’s total order book which currently stands at £27.6m. And with most of these projects due to complete before the financial year-end, the Board said its expectations for the full-year remain on track.
Attractive valuation
The house broker’s forecast ahead of today’s results was for full-year revenue of £96.6m and earnings per share of 20p. The shares are currently trading at 172p, putting Alumasc on a highly attractive P/E of 8.6. While the company clearly isn’t immune to external forces, it appears to be well-managed and the low P/E provides a good margin of safety against any cyclical downturn in the wider markets to which the group is exposed.
With the company also offering a 4% dividend yield (covered almost three times by earnings) and having net cash on the balance sheet of £5.2m, the shares look very buyable to me at their current level.
Housebuilding
Alumasc’s housebuilding products business is its smallest. It posted revenue of £4.4m (up 8%) during the period and a 22% increase in operating profit at a margin of 15.8%.
The equivalent numbers for Footsie housebuilder Persimmon were even more impressive, demonstrating the benefits of its scale and efficiency. Revenue of £1.5bn was up 12%, while operating profit increased 30% at a margin of 23.8%.
Also attractively valued
Like Alumasc, Persimmon has net cash on its balance sheet (£913m at 31 December). Its P/E is a little higher than Alumasc’s, standing at 9.9 at a share price of 1,925p, but still provides some margin of safety. Furthermore, Persimmon offers a more generous dividend yield of 5.7%.
The company said in a trading update earlier this month that it remains “mindful of the risks associated with the uncertainty arising from the UK’s decision to leave the EU” but that fundamentals continue to be supportive for housebuilding and demand remains healthy.
On the strength of this, as well as the cheap P/E and generous dividend, I also rate blue-chip Persimmon as a ‘buy’.
