These are boom times for building merchant Grafton Group Units (LSE: GFTU), whose share price is up a healthy 27% in the past 12 months. The forward momentum continues with the publication of today’s half-year report to 30 June, albeit at a slower pace, with the share price up a steady 1.5% at time of writing.
Sweat and hard graft
The FTSE 250 flyer, which has a market cap of £1.87bn, has just reported another positive set of results, with revenue up 9% to £1.3bn, or 6% in constant currency. Adjusted operating profit before property profit rose 19% to £77m. It also reported strong organic growth in its Irish Merchanting, Woodie’s DIY and Mortar Manufacturing businesses, while increasing scale and profitability at its Netherlands merchanting business.
Strong cash generation has reduced net debt from £95.7m to £80.2m year-on-year, leaving gearing at just 7%. Grafton has invested £68.6m in acquisitions and capital expenditure as it looks to expand the business, and has also treated investors by increasing the dividend 11%. Chief executive Gavin Slark reports all geographies contributing to double-digit growth in profits and earnings per share in the first half and said Grafton is well placed to deliver its full-year expectations.
Brexit bother
It has also delivered five consecutive years of double-digit earnings per share (EPS) growth but there are signs this could slow, with forecasters anticipating 5% in 2017 then 8% in 2018. Brexit is the main concern, given that the UK supplies more than two-thirds of group revenues.
That may explain its undemanding valuation of 15.4 times earnings despite the growth spurt. The yield is a forecast 1.9%, which may not be spectacular but as we have seen, management policy is progressive. Grafton should be on your watchlist in case we get news on the UK’s future EU relationship. At that point, it could fly again.
Life is life
Life insurance and pension provider Chesnara (LSE: CSN) has also issued its latest half-yearly report this morning with investors hoping it will sustain recent strong momentum, that has seen its share price rise 15% in a year and 105% over five years. So far, markets seem happy, with the share price up 3% this morning.
Chesnara’s speciality is buying up portfolios of insurance policies and managing them until they’ve expired. It currently administers over a million life and pension policies worth around £7.5bn and continues to add to its portfolio, recently completing the acquisition of Legal and General Nederland, now rebranded as Scildon, which created £65.4m of economic value (EcV). The group’s total EcV now stands at £700.4m, up from £602.6m on 31 December 2016.
Capital value
Today’s results also show Chesnara posting IFRS profit before tax of £51.6m, up from £200,000 one year ago, which includes a better-than-expected £20.7m gain on the Legal and General Nederland acquisition. The underlying core operating profit of £16.6m easily beats last year’s £9.5m. The group solvency ratio is steady at 143%, and the company remains well capitalised.
Chesnara, whose market cap is £584m, increased its interim dividend by 2.9%. Its forward yield is now a handsome 5.3%, with solid cover of 1.7. Today’s forecast valuation of just 11.3 times earnings may now be a good entry point.
