Material World. “Experience has made me rich”
Summary- The UK Building Materials Sector is vital but ignored; and in terms of definition and analysis, really only exists here.
- It comprises 18 companies with total revenue of £2.6 billion, net assets of £1.3 billion and more than 15,500 employees.
- The London Stock Exchange value is £3.62 billion as of 5th June 2015.In the latest fiscal year it has grown revenue by 9.4% and gross profit by 12.3%.
- Gross margins are a tidy 29.5%.
- EBITDA has done even better with 21% annual growth - and profitability at 11.7%.
- The Sector is in rude financial health, too, with average RONA of 18.1%, Net Asset Turn of 2.4x and a Quick Ratio of 1.60; gearing is also minimal and there was positive cash flow last year.
- Total Return to Shareholders in the 12 months to 5 June 2015 is an excellent 21.8%.
- Market Capitalisation/EBITDA and EV/EBITDA are 10.2x and 10.3x historic respectively.
- The average adjusted PER is 14.4x historic, falling to 12.8x in prospective Year 1 and 11.7x in prospective Year 2; meantime the prospective yield is around 3.0%.
- The outlook for the UK economy is sound with 2.0%-plus-GDP-growth, being the consensus forecast, very low unemployment, benign inflation and rising average earnings.
- The UK construction industry is doing even better with annual average growth of 4%, in real terms, 2015 through 2017 led by Private Housebuilding, Commercial and Infrastructure; as forecast by Experian.
- Based on potential earnings growth and the evolution of the PERs, we believe five stocks offer look most interesting: Marshalls; Michelmersh; Billington; Alumasc; and Polypipe.
- “Because we are living in a material world”.
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