Over the past 2 years, higher interest rates and soaring inflation have acted as a major drag on the UK homebuilding and construction sectors.
However, these headwinds now seem to be turning and specialist UK builders merchant and heating/plumbing products distributor Lords (LORD) appears to be ideally placed to benefit - just as it has done many times before across economic cycle.
Indeed, despite the continued "challenging conditions" coupled with recent wet weather and the General Election, the company said today that it was "trading in line with management expectations".
Here Q2 demand and gross margins for its repair, maintenance and improvement (RMI) products have been similar to Q1'24 levels, supported by the government's Clean Heat Market Mechanism causing less impact in April and May, and the successful integration of Alloway Timber (acquired in Sept'23) and Chiltern Timber (April'23).
Going forward, LORD's entrepreneurial culture should once again differentiate itself in this highly fragmented market, in turn boosting organic growth, profit margins, and ROEs.
Non-exec chairman Gary O'Brien commenting: "Whilst challenging macroeconomic conditions have impacted trading at the start of FY24,.. our strong customer service culture combined with a proven track record… gives the Board confidence that this will lead to a sustainable increase in shareholder value over the medium term."
What's more, the stock looks good value too, trading on attractive 'trough' earnings multiples of 5.1x EV/EBITDA and 12.9x PE, compared to rival Travis Perkins at 7.4x and 19.0x. House broker Cavendish has a 106p/share target price, based on FY24 revenue, adjusted EBITDA, and EPS forecasts of £450m, £23.8m, and 4.0p respectively.
Lastly, net debt (pre IFRS16) closed Dec'23 at £28.5m (1.6x EBITDA) and is underpinned by £15m of freehold property.
Time to be patient.
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