MIDAS SHARE TIPS: Building work will continue and merchants are open in lockdown, so Selco-owner Grafton is sturdy choice in rickety times
A weary sense of déjà vu swept through the nation last week, when Prime Minister Boris Johnson announced another nationwide lockdown and urged us all to stay at home. In some ways it seemed like March 2020 all over again – without the good weather.
There are some major differences though, not least in construction. In spring, many builders' merchants and DIY chains responded to the lockdown announcement by closing outlets, while contractors remained unclear for weeks about whether or not they were allowed to work.
This time around there is no confusion. Building work will continue and merchants can stay open. The news is welcome for thousands of businesses, including Grafton Group, which owns outlets such as Selco, Buildbase and Leyland SDM.
Going up: Grafton should win out as families forced to stay indoors improve their homes and building suppliers benefit
The group also owns Woodie's and Chadwicks in Ireland and several brands in the Netherlands too.
Grafton is often lumped in with other large builders' merchants. In reality, it is rather different.
Grafton shares have managed to claw back most of the ground lost in the coronavirus crash
Its 17 businesses are decentralised, so each has a high degree of control. Chief executive Gavin Slark believes this encourages better relationships with their customers and suppliers – and he should know.
Having left school at 16, Slark entered the building trade straight away. He has now spent most of his career in the industry.
In March, he will have been chief executive of Grafton for a decade, an unusually long tenure among quoted companies and one that means he understands the group better than most.
In recent years, Slark has steered Grafton away from commoditised products, such as plasterboard, sand or cement, where volumes are high and margins are low.
Instead, Grafton has been expanding into areas where pricing is less competitive and profits tend to be greater.
Chains such as Buildbase still offer all the basics, but Grafton's other subsidiaries are more specialised.
Selco is known for its extensive range, with more than 14,000 products, designed to allow jobbing builders to enter any store and find everything they need for daily work, from bathroom lights to loft insulation to letterboxes.
In the Netherlands, Grafton has three divisions, each of which specialises in areas such as ironmongery or power tools.
Recent acquisitions closer to home also highlight Slark's growing interest in niche sectors.
Last month, Grafton made two purchases: StairBox, which makes bespoke wooden staircases, and Proline, which sells high-quality ironmongery. A family business based in Stoke-on-Trent, StairBox uses up-to-date technology so customers can design and visualise their new staircases online. Dublin-based Proline sells products from brass doorknobs to coat hooks, building on Grafton's market leading position in Ireland.
Grafton's wide spread of businesses offers a degree of resilience in these uncertain times, and the geographical spread helps too. About half the group's profits come from outside the UK and Slark is actively looking for deals in Northern Europe, where the building trade tends to operate in a similar fashion to the British Isles.
Grafton was not immune to the effects of Covid. When the March lockdown was announced, most of its stores closed and staff were put on furlough.
The final dividend for the financial year ending on December 31, 2019 was cancelled and there was no interim payout with half-year results for 2020.
Recovery in the second half of the year was fairly swift, however, and confidence within the business grew steadily in the final quarter.
A year-end update on Tuesday should sound an upbeat note about recent trading. And brokers expect Slark to restore the dividend with a 19p payout when annual results are announced next month.
Looking ahead, the latest lockdown edicts have caused some concern, especially in Ireland, where restrictions are even tighter than here. But the more time people spend at home the more they want to make their homes look good – and Grafton's businesses help them to do just that.
Midas verdict: Grafton is a well-run business with plenty of potential here and overseas. At £9.57, the shares are a good, long-term buy.
Traded on: Main market Ticker: GFTU Contact: graftonplc.com or 00 353 216 0600
Most watched Money videos
- Skoda reveals Skoda Epiq as part of an all-electric car portfolio
- 2025 Aston Martin DBX707: More luxury but comes with a higher price
- How to invest for income and growth: SAINTS' James Dow
- The new Volkswagen Passat - a long range PHEV that's only available as an estate
- Mini unveil an electrified version of their popular Countryman
- How to invest to beat tax raids and make more of your money
- Iconic Dodge Charger goes electric as company unveils its Daytona
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- Mercedes has finally unveiled its new electric G-Class
- Mini celebrates the release of brand new all-electric car Mini Aceman
- MailOnline asks Lexie Limitless 5 quick fire EV road trip questions
- The UK sees a rise in foreign direct investment - the...
- BUSINESS LIVE: IHG's first-quarter revenues rise; Diageo...
- Is the Ferrari 12Cilindri the last of its V12s? It...
- Debt-laden Asda strikes huge £3.2bn refinancing deal
- MARKET REPORT: Cheers! Nightcap in talks to buy...
- BHP boss in South Africa to drum up support for takeover...
- Extending the windfall tax could drive Shell across the...
- Diageo appoints Nik Jhangiani as next finance boss
- Peloton boss Barry McCarthy throws in the towel as...
- Apple reports 4% fall in quarterly sales as it suffers...
- Novo Nordisk can't keep up with demand as sales of its...
- Trainline shares steam ahead as it doubles profits amid...
- Lords call in FCA chief Nikhil Rathi over plan to 'name...
- Tiktok and Universal settle dispute over royalties and...
- Russian energy giant Gazprom sees gas sales more than...
- Ajay Banga vows to build better World Bank: But is he the...
- Should you really pay as much as possible into your...
- UK investors pour cash into US equities, data shows