- Weakness in housing and home improvement markets weigh on results at paving, masonry and roofing expert
- Debt is coming down and costs are being cut
- Share price may already factor in a lot of bad news
- Management will unveil new five-year plan in November
“Double-digit percentage drops in first-half sales and profits may not look great, and management’s forecast that profits for the full-year will be ‘broadly’ in line with expectations suggests that trading is still difficult, but shares in landscaping and building and roofing products supplier Marshalls are not flinching,” says AJ Bell investment director Russ Mould. “This may be partly because the company is cutting costs and reducing debt, and also partly because the company announced a dividend cut for 2023 and a profit warning for 2024 alongside March’s full-year results, so a lot of bad news may already be in the share price.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“The shares may be trading near 12-month highs, boosted by the self-help programme and lower net debt pile, since less borrowing means less risk, and less risk can mean a higher share price, or at least a higher multiple of earnings for the stock, all other things being equal.
“Hopes for interest rate cuts and the possible boost this may bring to the UK construction and home improvement industries may also be giving a lift to the share price, but it still stands no higher than in 2015, to again suggest expectations for any putative recovery are low.
Source: LSEG Refinitiv data
“A forward price/earnings ratio of 21 for 2024, coupled with a forecast yield of 2.4%, may not immediately imply there is value to be had here either. But the soggy state of the UK economy, as it tentatively emerges from 2023’s shallow recession, does not help here, and both earnings and the dividend are depressed as a result.
“This means that Marshalls’ valuation could be deceptive, and it may give the company little credit for any potential recovery in sales, earnings or dividends. Marshalls made nearly £58 million in net profit in in 2019, just before the pandemic, and the dividend reached 15.6p a share in 2022. A return to anything like those levels would leave the stock looking cheap on both an earnings and a yield basis.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“Last year’s stated profits were badly dented by some £20 million in restructuring charges and asset impairments, but management believes that 2024’s profits will be no higher than those of 2023, on an underlying basis, once those items are taken out of the equation.
“That means any investors looking for a turnaround play will have to be patient, for any turnaround to take effect, but the masonry, mortar, paving, walling and pitched roof expert should be primed to capitalise upon any improvement in volumes, and therefore revenues, as and when it comes, thanks to the efficiency and debt reduction programmes.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
“All eyes may now turn to the investor day scheduled for November, when relatively new chief executive Matt Pullen will get to outline how he intends to build the company’s momentum via a new five-year plan.”
