Strong demand in the newbuild housing market helped towards a good first half result, in terms of meeting our FY 17 EBITDA and another strong cash performance. Although company guidance for the FY is unchanged, we sense there is scope for slight outperformance, since the H1 result represents 53% of our FY estimate. Net debt was c. £10m below our estimates, before the Bison acquisition, which we thought was a positive move
Revenue increased by 11.4% to £162.7m, driven by a 13.8% rise in the Brick and Blocks division, a result of strong demand and pricing from the newbuild sector (see over). This helped offset cost increases. EBITDA before exceptionals was up 1.0% to £38.7m, with comparatives held back by budgeted cost increases of £1.7m reflecting the additional expenses of operating as a standalone business. The increase would have been 5.7% after adjusting for this.
Cash flow was again strong. This has been a continuing theme since the IPO, with estimates falling at almost every company results or trading statement. Net debt fell £22.9m since December to £69.4m at the half year end, almost our YE 17 estimate of £68.4m. Net debt to 12-month trailing EBITDA has now fallen to 1.0x. As a result, we have trimmed £8m before adding £20m for the acquisition of the assets and business of Bison. A new RCF facility has been agreed, which will lower the cost of debt.
The outlook statement maintained FY guidance, despite the strong start. It states: “we remain watchful over any negative impact from weakening of consumer confidence on the housing or RMI (repair, maintenance and improvement) markets”. We see this as a typically cautious statement from a management that has been marked by conservatism since float. However, it does reflect the potential of the particularly strong momentum in housebuilding volumes in the first half softening, while the valuable Fletton production is largely dependent on households undertaking ‘large ticket’ extensions to their homes.
That said, we believe there may be scope for a slight ‘tweak’ upwards to our FY 17 numbers and we will re-examine our assumptions (including the lower cost of debt and impact of the Bison deal) in the autumn. For 2018, we have maintained out earnings estimates, but we have added revenue of £23m and EBITDA of £1m to reflect the first full year contribution from Bison. This may, again, prove conservative, but we will re-examine this and an improving contribution when we establish a FY 19 estimate in our next update.
Valuation: the stock is currently trading at (FY 17) 12.5 P/E, yield of 3.3% and EV/EBITDA of 8.8x.