Alumasc – trading update could spur the recovery

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Alumasc – trading update could spur the recovery

The easing of lockdown restrictions is good news for building products supplier Alumasc, writes Mark Watson-Mitchell. 

Within the next week or so we should be getting a second-half trading update from Kettering, Northamptonshire-based Alumasc (LON:ALU).

I am looking for the statement to show that the shares, at just 80p, have some good upside.

Like so many other companies in the construction sector, it suffered a pull-back due to Covid-19. However, now with the general easing of lockdown restrictions there is a gradual return to work on building sites across the country. And that just has to be good news for the company.

As a supplier of premium building products, systems and solutions it will be expecting to see its sales books build up significantly.

The group has three business segments with strong positions and brands in their individual markets.

The three segments are Building Envelope; Water Management; and Housebuilding Products.

The Building Envelope segment comprises of Alumasc roofing, and Levolux solar shading, screening and balcony solutions. It provides solutions for developers and specifiers seeking roofing and walling systems. It is involved in the mid to late cycle of the construction process. It contributed 44% to group revenue.

Its Water Management segment provides a portfolio of water management products and systems. The group’s products manage and attenuate water originating inside and outside buildings, including integrated ‘Rain to Drain’ solutions, for a diversity of the new build and refurbishment markets. In the 2018/19 year it made up some 43% of group sales.

The Housebuilding Products segment designs and manufactures nearly all of its housebuilding products. Around 13% of group sales is created by this division. It is involved in the early-mid cycle of construction and its core business is in new build housing.

Almost 80% of group sales are driven by building regulations and specifications (architects and structural engineers) because of the performance characteristics offered.

Over the last eight years the group has been steadily building up its revenues from £58.3m in 2011/12 to £90.1m in 2018/19. As at the end of June last year it had £41.6m of its capital invested, compared to today’s market capitalisation of just £29.2m.

There are 36.5m shares in issue, with a number of  investment professionals in the equity including AXA Investment Managers (9.46%), Hargreaves Lansdown Stockbrokers (4.94%), Chelverton Asset Management (4.50%), Interactive Investor (3.21%), Charles Stanley Investment Management (3.04%), Unicorn Asset Management (2.99%) and Fortezza Finanz (2.93%).

The long-time Chairman, John McCall, holds 12.1% of the shares. He was the man who took the company out of the old Consolidated Gold Fields Group way back in 1984 and floated it two years later.

In those days it was a manufacturer of precision engineering components and aluminium beer barrels, before involving itself in rainwater and drainage products.

There are two other private investors with good share stakes – Philip Gwyn with 8.46%, and Derek O’Loughlin with 4.29%.

Obviously, brokers estimates, for the current year to end-June and then into next year, have been withdrawn due to the Covid-19 pandemic interruption.

However, after having reacted very quickly the group temporarily closed a number of its premises but kept others open due to ongoing demand.

It is well worth noting that, within the last two months or so, three of its directors bought shares, at prices ranging from 66p to 78.9p.

Three weeks ago, the group announced that, in the Middle and the Far East, it had recently been winning new business from contracts, in Fiji, Hong Kong and Qatar, worth over £4m.

Although the majority of its sales are in the UK, the group has a lot of export potential, with over 10% of sales into the international markets.

So, this imminent trading update for the year to end-June 2020 will be very interesting to see. The interim results that were announced in early February were good and indicated that already big cost reductions were on track for the year.

The group has a strong balance sheet and, at the end of April this year, had some £16.6m of headroom in its banking facilities.

In late February the group’s shares were trading at 130p and then fell to a 60p low in late March, since when they have been edging higher.

Estimates suggest that £76m of current year sales will lead up to £87m for the year to end-June 2021. With pre-tax profits of £4m for this year, worth 9p in earnings, then £6.75m for the coming year, giving 15p in eps.

I look for a positive statement about future trading.

So, in the short term the shares, currently 80p, could rise to 105p/110p, while my own sights now should be stretching my target out on an 18-month view.

Profile 13.02.20 @ 116p previously set an end-2020 Target Price of 145p.

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