A return to form for this FTSE 250 star

An off-colour 2018 for shares in pavings firm Marshalls came to an end today, fuelling optimism amongst analysts. Graeme Evans reports.

Normal service looks to have been resumed at Marshalls after the popular FTSE 250 Index stock surged 8% in the wake of impressive half-year results.

Until today 2018 had been pretty lacklustre by the landscape products company's own high standards, with disruption caused by the Beast from the East one reason for shares standing 7% lower in the year to date.

That tepid performance contrasts with a previous five year period in which shares have rocketed by around 400%.

Today's half-year figures suggest a return to form, with the £9 million sales hit from four months of bad weather offset by 21% revenues growth in June and July. Despite the ongoing political and economic uncertainty, Marshalls added that underlying indicators also remain positive in its end markets.

Shares returned to a level last seen in November as analysts at Numis Securities and Peel Hunt reiterated their view that at least 500p was possible.

Numis analyst Chris Millington said the results showed "strong momentum",, noting that shares were trading on a 16.1x 2019 price earnings multiple.

He added:

"We do not think this is demanding for a company with a history of upgrades, a strong balance sheet capable of financing acquisitions and its strong end-market positioning."

At Peel Hunt, analysts increased their price target by 10p to 515p after seeing the group continue to outperform end-markets. They added £1 million to their pre-tax profits forecast, taking the figure for 2018 to £60.5 million.

Part of the reason for today's 12% increase in half-year profit to £32.5 million was the acquisition of pre-cast concrete maker CPM in a £41 million deal last October. The new business has continued to trade strongly and offers numerous cross-selling opportunities as well as a strong pipeline of new products.

CPM boosted the public sector and commercial division, which accounts for two-thirds of total sales and achieved sales growth of 19% on the prior year. The group continues to target the strongest parts of the market, which are new build housing, road, rail and water management. 

In contrast, sales to the domestic end market were "significantly impacted" by the weather, although they were still in line with a year earlier. Domestic installers reported order books of 11.3 weeks at the end of June, which is up from 10.8 weeks in February.

Cash generation continues to be strong, but the bad weather in the first four months of the year disrupted the working capital cycle and meant reported net cash flows were down £5.2 million to £14 million in the half year.

The company declared an interim dividend of 4p a share, an increase of 18%. It offers a dividend yield of 3.8% and 4.3% for 2018 and 2019 respectively.

Marshalls has been supplying natural stone and concrete products to the construction, home improvement and landscape markets since the 1890s.