Multi-faceted growth attractions

Marshalls 17 March 2016 QuickView

Marshalls

Multi-faceted growth attractions

Construction & materials

QuickView

17 March 2016

Price

329p

Market cap

£656m

Share price graph

Share details

Code

MSLH

Listing

LSE

Shares in issue

199.4m

Business description

Marshalls is the UK's leading manufacturer of superior natural stone and innovative concrete hard landscaping products, supplying the construction, home improvement and landscape markets. It operates its own quarries and manufacturing sites throughout the UK and has a national network of distribution sites. A small international division (c 5% of revenues) is based in Belgium.

Bull

Leading UK brand and market position.

Positive market outlook and operational gearing visible.

Margin potential above consensus estimates.

Bear

RMI market improving but still patchy in places.

Greater competition in commodity products.

Material pension liabilities but modest scheme surplus (at December) and no recovery cash contributions required from FY16.

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

FY15 results showed further signs of the group gaining momentum in both reported numbers and business prospects. Having regained prerecession levels of profitability, management has laid out a clear growth agenda founded on strong market positions. The company is a premier UK-focused play offering good growth in earnings, cash and dividends.

Strong progress anticipated and delivered

Marshalls’ rating is on a growth footing; FY15 results did not disappoint with PBT +57%, EPS +41% and DPS +19% (+50% including a supplementary 2p declared). Moreover, this translated to a good cash performance, leaving the group modestly geared. As reported at H115, pension exposures have been well managed and no deficit recovery cash payments are anticipated (vs £4.4m paid in FY15). With some underperforming areas fixed and now contributing to profit under a consolidated brand umbrella, Marshalls is progressing across a wider front.

More of the same

The new 2020 strategy is light on externally communicated financial targets. We see it as a ‘more of the same’ approach with greater co-ordinated focus on the enablers (such as IT platforms, new product development and manufacturing efficiency) to reinforce the customer proposition. Based on a positive industry growth outlook, the company’s market position and initiatives to grow its share, revenue growth looks set to be 5-10% pa in the next three years or so. An incremental capex programme (£15m over three years) is designed to enhance returns and no major capacity capex is considered necessary in the foreseeable future. In the absence of any acquisitions and/or supplementary dividends – which are both possible – in FY16 we expect Marshalls to be modestly cash positive at the year end. Even with a designed reduction in committed bank facilities (currently £80m), we believe Marshalls’ financial headroom (above £100m including all on demand facilities) will increase over the next three years driven by cash generation.

Valuation: Earnings, cash and dividend growth

We believe consensus revenues are attainable but would expect higher profit to flow. Put another way, we feel consensus PBT is very achievable, more so if market conditions remain firm. On current estimates, the rating (current year P/E and EV/EBITDA of 18.7x and c 10x respectively) should come down rapidly with good dividend growth expected.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

358.5

22.4

10.1

6.0

32.6

1.8

12/15

386.2

35.3

14.1

7.0*

23.3

2.1*

12/16e

415.7

43.2

17.6

8.7

18.7

2.6

12/17e

441.0

50.4

20.6

10.2

16.0

3.1

Source: Bloomberg. *Excludes 2p supplementary dividend, payable with the 4.75p final.

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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