Alumasc Group – trading at half the rating of its peers

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Alumasc Group – trading at half the rating of its peers
Master Investor Magazine

Master Investor Magazine Issue 59

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Last week’s announcement of its interim results suggest bigger profits are on the way for Alumasc Group, writes Mark Watson-Mitchell. 

Alumasc Group’s (LON:ALU) business is the supply of premium building products, systems and solutions. Almost 80% of its sales are derived through architects and structural engineers and others, who are driven by building regulations and specification requirements.

The company enjoys leading specialist market positions and is strategically positioned to gain from structural long-term business drivers, such as sustainability in water and energy management; ease of construction; and bespoke architectural solutions.

It operates through three business segments: roofing and water management; architectural screening, solar shading and balconies; and housebuilding products and ancillaries.

The roofing side provides waterproofing systems for flat roofs, roofing support services, exterior wall insulation systems and façade systems, helping and managing water in and out of buildings. Effectively they cover ‘rain to drain’ solutions.

The architectural screening side includes the design and supply of bespoke solar shading, screening and balcony and balustrading systems.

Its premium housebuilding products take in ventilation products, cavity closers and trays, loft doors and dry roof verge products. Its core market is new-build housing.

Roofing contributes 44% of group sales, water management 43% and housebuilding products some 13%. The group holds top three positions in its specialist markets.

Its end markets cover new-build and refurbishment across the private and public sectors, as well as in the commercial and residential markets.

In the current year, the company has put into place some £2m of fixed cost savings and it has been rationalising its operations. It has also been pushing its export sales to the US, Middle East and Far East.

There are 36.5m shares in issue, with chairman John McCall owning 12.1% and two other private holders, Philip Gywn 8.46% and Derek O’Loughlin 4.29%, having sizeable positions.

Institutional investors in the equity include AXA Investment Managers (9.46%), Chelverton (4.50%), Hargreaves Lansdown (4.37%), IPConcept Luxembourg (4.15%), Fortezza Finanz (4.15%), Schroder Investment Management (3.32%), Interactive Investor (3.21%) and Charles Stanley (3.04%).

Despite wet weather, Brexit and pre-general election conditions, the group actually held up well in the first half to end-December 2019. The good news is that the construction sector is now picking up again.

We can expect a stronger second half as those cost savings start to kick so it is evident that a good swing upwards in profit is likely for the 2019/2020 trading year.

For the year to end-June 2020 broker estimates are suggesting that on steady sales of around £89m, which is impressive against tricky markets, it could well see adjusted pre-tax profits leaping from £5.6m to £7.6m, with earnings increasing from 12.3p to 16.9p, while keeping the dividend at 7.4p per share.

The next year, some £94m of revenue could push profits still further, to around £8.5m, worth 18.9p in earnings and still with a healthy 7.4p per share dividend.

The group’s shares, currently trading at around the 116p level, are on a very handsome yield of 6.4%, which is twice the average of its peers.

At that level the company is only capitalised at £42.5m and its shares trade at 7 times current year earnings and just over 6.1 times prospective – which is over 50% lower than the ratings of its peers.

These shares appear undervalued, and I do feel that they could advance to the 145p level before the early June full-year trading update.

My end-2020 target price is 145p.

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