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Outlook maintained

Genuit Group 2 December 2021 Update
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Genuit Group

Outlook maintained

Building & construction

2 December 2021

H122 results

Price

582p

Market cap

£1,443m

€1.18/£

Net debt (£m) at end October 2021
(excluding IFRS 16 lease liabilities)

157

Shares in issue

248m

Free float

93%

Code

PLP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(12.6)

(27.3)

12.8

Rel (local)

(11.2)

(26.6)

(0.3)

52-week high/low

801p

457p

Business description

Genuit (formerly Polypipe) is a leading supplier of largely plastic building products and systems. Operations in the UK (c 90% of revenue) address a broad range of sectors including residential, commercial and civil building demand and a number of subsectors within them. Overseas revenues are generated through exports, particularly to the Middle East, and a small Italy-based specialist fittings business.

Next events

FY21 year end

December 2021

FY21 results

15 March 2022

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Genuit Group is a research client of Edison Investment Research Limited

Revenue momentum has remained strong well into H221 and Genuit’s profit expectations for FY21 are in line with the market’s. The company’s share price has retraced to start-year levels recently (and underperformed the FTSE All-Share Index by 10% in the last month), with no change to business fundamentals in our view. While short-term challenges (such as supply chain strains) are present, we consider that overall market risk is lower now compared to the lockdown-driven uncertainties of 2020.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/19

447.6

70.8

29.2

4.0

19.9

0.7

12/20

398.6

35.7

13.3

4.8

43.8

0.8

12/21e

593.0

86.7

28.6

12.0

20.3

2.1

12/22e

604.3

94.3

31.1

13.0

18.7

2.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. FY19 DPS represents the H1 payment only (no final dividend was declared) and FY20 DPS represents the final payment only (no interim was declared).

Good organic and acquisition revenue progress

Genuit’s November trading update indicated a similar strong rate of group revenue growth thus far in H2 compared to H1 (ie +31.1% for the four months to October and +32.4% respectively) compared to the (pre-COVID) 2019. Against the same base year, the latest four-month period is also well ahead on a l-f-l basis (+10.8%), although slightly behind the +13.8% seen in H1. Factoring in a stronger pricing effect as FY21 has progressed suggests that underlying demand has begun to normalise, but we are unable to quantify this at this stage. We believe that the revenue contribution from three Q1 acquisitions has been strong, most probably led by momentum at Adey (a residential heating filter and consumables supplier).

Outlook for FY21 and beyond unchanged

The aforementioned price increases aim to recover cost inflation and, while this will dilute margin in the short term, management anticipates that the FY21 profit outturn will be within existing market expectations (EBIT range £92.5–95.9m). Updating our estimates for H1 results and the latest update, we now reflect progressive pricing effects on top of firm volumes, which raises both revenue and EBIT – diluting FY21 margins only – compared to our last published estimates and we are at the lower end of the market range. Genuit’s senior team is undergoing a well-flagged transition with a new COO at the start of November and CEO-elect Joe Vorih expected to join in early 2022 after a handover from Martin Payne. Genuit’s positive long-term residential and infrastructure sector drivers are very much intact and, increasingly, underpinned by environmental and wider ESG considerations.

Valuation: Share price back to start of FY21 levels

Genuit’s share price has traded above its pre-COVID peak (of 607p) for much of this year, but has recently retraced below 600p for the first time since May. On our earnings estimates, Genuit’s EPS is expected to exceed the FY19 level in FY22, and the P/E and EV/EBITDA multiples for this year have compressed to 18.7x and 11.6x respectively currently.

Exhibit 1: Financial summary

£m

2014

2015

2016

2016*

2017*

2018

2019

2020

2021e

2022e

2023e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

327.0

352.9

436.9

387.2

411.7

433.2

447.6

398.6

593.0

604.3

638.3

Cost of Sales

 

 

(202.4)

(210.0)

(256.8)

(219.1)

(236.0)

(251.9)

(255.2)

(242.5)

(353.5)

(347.4)

(367.0)

Gross Profit

 

 

124.6

142.9

180.1

168.1

175.7

181.4

192.4

156.1

239.4

256.8

271.3

EBITDA

 

 

60.8

69.3

86.4

84.5

88.3

90.6

99.1

63.4

118.8

128.3

137.3

Operating Profit (underlying)

 

 

46.3

54.2

70.4

69.5

73.4

75.0

79.3

43.6

94.4

103.5

112.2

SBP

 

 

0.0

0.0

(1.0)

(1.0)

(0.8)

(1.0)

(1.2)

(1.4)

(2.0)

(2.0)

(2.0)

Operating Profit (reported)

 

 

46.3

54.2

69.4

68.5

72.6

74.0

78.1

42.2

92.4

101.5

110.2

Net Interest

 

 

(7.7)

(5.3)

(6.6)

(6.6)

(5.8)

(5.8)

(6.2)

(4.2)

(4.5)

(6.5)

(6.0)

Other finance

 

 

(1.0)

(0.9)

(1.0)

(1.0)

(1.1)

(1.1)

(1.1)

(2.3)

(1.2)

(0.7)

(0.7)

Intangible Amortisation

 

 

0.0

(3.0)

(6.8)

(6.8)

(5.5)

(5.9)

(7.5)

(7.8)

(13.5)

(13.5)

(13.5)

Exceptionals

 

 

(20.7)

(3.5)

(0.6)

(0.6)

(4.6)

(2.7)

(3.2)

(4.1)

(6.1)

0.0

0.0

Profit Before Tax (norm)

 

 

37.6

48.0

61.8

60.9

65.7

67.1

70.8

35.7

86.7

94.3

103.5

Profit Before Tax (statutory)

 

 

16.9

41.5

54.4

53.5

55.6

58.5

60.1

23.8

67.1

80.8

90.0

Tax

 

 

(5.4)

(9.2)

(11.8)

(10.1)

(11.8)

(10.5)

(11.9)

(6.3)

(15.6)

(17.0)

(18.6)

Profit After Tax (norm)

 

 

32.2

38.8

50.0

49.2

53.9

56.5

58.9

29.4

71.1

77.3

84.9

Profit After Tax (statutory)

 

 

11.5

32.3

42.6

43.4

43.8

49.1

49.6

18.5

46.2

66.3

73.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

199.9

199.3

198.9

198.9

198.4

199.0

199.3

218.1

245.8

245.8

245.8

EPS - normalised (p)

 

 

16.1

19.4

25.0

24.6

26.9

28.1

29.2

13.3

28.6

31.1

34.2

EPS - statutory (p)

 

 

5.8

16.2

21.4

22.2

22.1

24.7

24.9

8.5

18.8

27.0

30.0

Dividend per share (p)

 

 

4.5

7.8

10.1

10.1

11.1

11.6

4.0

4.8

12.0

13.0

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

38.1

40.5

41.2

43.4

42.7

41.9

43.0

39.2

40.4

42.5

42.5

EBITDA Margin (%)

 

 

18.6

19.6

19.8

21.8

21.4

20.9

22.1

15.9

20.0

21.2

21.5

Operating Margin (underlying) (%)

 

 

14.2

15.4

16.1

17.9

17.8

17.3

17.7

10.9

15.9

17.1

17.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

324.2

476.5

472.6

 

455.1

520.3

542.4

540.9

815.4

812.7

809.6

Intangible Assets

 

 

235.0

378.4

371.6

 

356.5

401.9

401.8

393.8

638.3

624.8

611.3

Tangible Assets

 

 

89.2

98.1

101.0

 

98.6

118.4

140.6

147.1

177.1

187.9

198.3

Investments

 

 

0.0

0.0

0.0

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

103.9

99.6

119.5

 

147.7

141.7

148.2

158.9

210.6

248.4

299.1

Stocks

 

 

39.9

47.5

52.2

 

53.5

58.1

59.7

52.6

71.7

70.5

74.5

Debtors

 

 

20.2

29.3

38.9

 

32.6

37.2

40.5

61.1

79.7

84.8

89.0

Cash

 

 

43.1

21.6

26.5

 

35.7

46.2

47.7

44.1

55.2

85.5

124.2

Current Liabilities

 

 

(69.8)

(87.2)

(104.5)

 

(108.8)

(108.7)

(108.1)

(119.1)

(146.3)

(144.6)

(150.3)

Creditors

 

 

(69.8)

(87.2)

(104.5)

 

(108.8)

(108.7)

(108.1)

(119.1)

(146.3)

(144.6)

(150.3)

Short term borrowings

 

 

0.0

0.0

0.0

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(120.6)

(227.9)

(200.2)

 

(192.0)

(222.1)

(221.1)

(79.8)

(260.9)

(263.3)

(265.7)

Long term borrowings

 

 

(118.0)

(215.9)

(190.8)

 

(184.1)

(210.4)

(197.7)

(58.9)

(197.2)

(197.2)

(197.2)

Other long-term liabilities

 

 

(2.6)

(12.0)

(9.4)

 

(7.9)

(11.7)

(23.4)

(20.9)

(63.7)

(66.1)

(68.5)

Net Assets

 

 

237.7

261.0

287.4

 

302.0

331.2

361.4

500.9

618.8

653.2

692.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

50.6

72.6

86.5

 

79.2

90.0

89.4

61.5

99.8

120.7

132.5

Net Interest

 

 

(10.4)

(5.7)

(7.3)

 

(6.6)

(6.1)

(7.4)

(5.4)

(4.9)

(6.9)

(6.4)

Tax

 

 

(3.7)

(5.2)

(10.1)

 

(12.6)

(11.2)

(12.4)

(8.2)

(14.0)

(15.6)

(17.0)

Capex

 

 

(14.9)

(18.9)

(18.7)

 

(22.0)

(23.2)

(18.0)

(24.5)

(35.9)

(31.0)

(31.0)

Acquisitions/disposals

 

 

(0.3)

(149.5)

0.0

 

0.0

(42.5)

(12.2)

(1.8)

(237.0)

0.0

0.0

Financing

 

 

(1.7)

0.0

(2.9)

 

(0.7)

0.3

2.4

118.5

92.0

(1.5)

(1.5)

Dividends

 

 

(3.0)

(10.6)

(17.1)

 

(21.0)

(22.3)

(23.7)

0.0

(21.8)

(30.4)

(32.9)

Net Cash Flow

 

 

16.6

(117.3)

30.5

 

16.3

(15.1)

18.1

140.1

(121.8)

35.3

43.8

Opening net debt/(cash)

 

 

84.7

74.9

194.3

 

164.3

148.4

164.2

150.0

14.8

142.0

111.7

Finance leases

 

 

(9.6)

(1.7)

0.0

 

0.0

(1.6)

(3.5)

(4.0)

(5.0)

(5.0)

(5.0)

Other

 

 

2.8

(0.4)

(0.5)

 

(0.4)

0.8

(0.4)

(0.9)

(0.4)

0.0

0.0

Closing net debt/(cash)

 

 

74.9

194.3

164.3

 

148.4

164.2

150.0

14.8

142.0

111.7

73.0

Lease finance (under IFRS 16)

 

 

 

 

 

 

 

14.8

12.9

21.8

21.8

21.8

Source: Company accounts, Edison Investment Research. Note: *Continuing operations.

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This report has been commissioned by Genuit Group and prepared and issued by Edison, in consideration of a fee payable by Genuit Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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