As another reminder of the entrepreneurial spirit and resilience of the business, specialist builders merchant and heating/plumbing products distributor Lords (LORD) announced today that it had sold and leased back (15-year tenure) its 1.52-acre Heathrow branch to Outback UK Propco for £7.1m.
The site was originally purchased for £6.3m back in Jan'23 when Lords acquired George Lines (GL), demonstrating once again the multiple levers that the group can pull during challenging trading conditions.
£3.1m of the £7.1m proceeds will be allocated to repay the outstanding deferred consideration to the GL vendor, with the rest (£3.9m) used to cut LORD's borrowings (June net debt pre IFRS16 of £36.3m).
CEO Shanker Patel commenting: "We are pleased to agree this transaction to support future trading from the highly sought-after Heathrow site, that has exceptional logistic and trading benefits for the George Lines merchanting brand and we look forward to continuing to grow organically through new branch openings. The financial benefits of the transaction are also supportive of our strategy to scale the business, focus on operational efficiency and manage working capital - [which positions us well] for a market recovery."
In terms of the numbers, house broker Cavendish is pencilling in net debt to decline further by Dec'24 to proforma £27m, as the summer working capital build unwinds (re boiler inventory) - representing proforma net debt to EBITDA (pre IFRS 16) and interest cover of c. 2.0x and 2.7x, underpinned by £75m of committed bank facilities until April 2027 and another c. £7m of freehold property.
Better still, once the 30th October Budget is out the way, I suspect prospects of the broader building products industry will turn more favourable.
Here the Labour government plans to lift new home construction to 300k pa or +40% vs 2023 levels. Elsewhere, property prices are climbing, input cost inflation has moderated, interest rates are falling, and all the national housebuilders are citing improved conditions. Plus, there are literally millions of properties that need upgrading and decarbonising, which plays perfectly into Lord's strengths in RMI and energy-efficient products, such as Air Source Heat Pumps.
So putting all this together, LORD (mrkcap £65m at 39p), which trades on a FY25 PE multiple of 11.1x (vs rival Travis Perkins at 14.8x), appears to be an attractive recovery stock for risk tolerance investors with a 3-5 year view, particularly as the Board remains committed to its medium-term EBTIDA margin targets of 7.5% vs 5.9% in H1'24.
Follow News & Updates from Lords: