Grafton Group - Encouraging H1 to underpin ongoing earnings momentum

Davy Research
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After a challenging start to the year, Grafton’s revenue growth has recovered strongly in May and June. Its UK operations remain robust despite the uncertain backdrop, while the group continues to benefit from its exposure to fast recovering markets in Ireland (Retail especially) and the Netherlands. We already expected Grafton to generate a double-digit improvement in trading profits in 2018 for the ninth successive year. While we will likely wait to see its first-half profitability (and July/August trading) before making meaningful changes to our forecasts, there is now clearly an upward bias to both our and consensus expectations. When combined with strong management and attractive balance sheet optionality, the stock remains an attractive investment opportunity. Grafton is our top pick in the Merchanting sector. We reiterate our ‘Outperform’ recommendation and price target of 900p.