Company of the Month February 2018: Grafton Group

Pictured: Gavin Slark, CEO, Grafton Group.

Grafton Group, the international building materials distributor saw share prices rise after the purchase of British decorating chain.

Grafton Group, the international distributor of building materials saw their shares rise over 1.25% in February after the announcement of the purchase of British decorating chain Leyland, the largest independent specialist decorators’ merchant in the London area.

Grafton Group, which operates over 550 building suppliers merchants in Ireland, the UK, Netherlands, and Belgium, as well as the consumer DIY retailers Woodie’s, paid €93m for the decorating chain. Leyland operates 21 stores in prime central London locations including Notting Hill, Chelsea and Kensington.

“The acquisition of Leyland SDM is a unique opportunity to acquire a leading brand with exceptional locations in Central London and expands our presence in a resilient segment of the merchanting market located at the heart of one of the world’s leading cities,” said Gavin Slark, chief executive officer of Grafton.

Analyst reactions

Grafton will fund the transaction from its cash and debt facilities. Leyland’s 2017 revenues were stg£47.8m while earnings before interest and tax totalled stg£7.3m. Its gross assets are estimated at around stg£10m. Analyst reaction to the deal has been overwhelmingly positive. Numis Securities, one of the UK’s leading independent institutional stockbrokers and corporate advisors, said the acquisition looked like “a very sensible deal”.

Their broker said: “The scope to provide specialist products into London provides an interesting ‘small box’ complement to Selco in this market, where – as with Grafton’s Dutch operations, which also provide a specialist merchanting offering – management track record is excellent. Moreover, the acquisition provides another area where bolt-on and organic growth by branch will complement Grafton’s existing growth portfolio, adding a positive dimension in the flat backdrop we expect in the UK market overall.”

Numis raised its estimates for the current year by 2.8% to account for the acquisition; it is now forecasting profit before tax of £153million and earnings per share of 52.4p.

German bank Berenberg upgraded Grafton in February, to ‘buy’, with a price target of 920p – 133.5p above the current share price –  citing geographic diversity; investment in a differentiated UK branch network; and a strong balance sheet as the three key drivers of the positive earnings momentum they expect to see in 2018.

Last year Grafton reported revenue of €3.03billion in constant currency rates, a 6.8pc increase year-on-year. Grafton announced that both its merchanting and retail arms in Ireland experienced a lift from an economic recovery that will continue this year.