Marshalls, SIG valuations 'too high' as Barclays begins coverage of sector
Marshalls and SIG were picked out by analysts at Barclays as the two likely under-performers as the bank began coverage of the UK building products sector.
Breedon Group
372.00p
16:35 19/04/24
Construction & Materials
9,482.73
17:10 19/04/24
FTSE 250
19,391.30
17:09 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE AIM 100
3,595.66
17:08 19/04/24
FTSE AIM All-Share
745.67
17:08 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
FTSE Small Cap
6,331.12
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Genuit Group
420.00p
16:45 19/04/24
Grafton Group Ut (CDI)
926.30p
17:15 19/04/24
Howden Joinery Group
853.50p
16:55 19/04/24
Kingspan Group (CDI)
€72.80
16:54 17/08/23
Marshalls
257.50p
16:35 19/04/24
SIG
26.60p
16:40 19/04/24
Support Services
10,465.25
17:10 19/04/24
Tyman
296.00p
16:58 19/04/24
Barclays took a neutral view on the UK small and mid-cap building products sector, with individual companies seek to battle 2018's likely uncertainty, constrained volumes and volatility in share prices, with self-help initiatives, organic growth strategies, more capex and solid balance sheets.
But Marshalls, the paving stone and tile supplier, was given an initial 'underweight' recommendation and a 429p price target, while insulation specialist SIG was also given the same rating and a 155p target price, as the only two in the sector that are seen worth avoiding for now.
Marshalls has demonstrated its quality over the past five years, but a closing price last week of 460p gave a valuation of more than 20 times earnings, which "fails to fully reflect the potential market risk given that Marshalls is one of the most weighted towards the UK consumer and one of the most operationally leveraged in the group".
Furthermore, current volume outperformance is felt to have been "inflated by some company-specific points", which is expected to create a more challenging comparative in 2018.
Looking at SIG, with management's turnaround targets have now been formally outlined, the market "already looks to be assuming a substantial amount of progress, ahead of our and consensus estimates on EBIT margin".
Howden Joinery was given an 'equal weight' rating as there is "limited upside" seen in the shorter term due to being the most exposed business to the UK consumer within the analysts' coverage, though potential opportunities for greater expansion into France are "likely to be a decision for new management later in 2018".
But there was more positive opinions for Breedon, Grafton, Kingspan, Polypipe and Tyman, which were all given 'overweight' ratings.
Breedon's premium valuation is "well deserved" given the aggregates group's opportunity to continue to consolidate the smaller end of the UK sector. It was given a 93p price target.
Whilst builders' merchant Grafton is UK-weighted and there are volume risks to retain some market concern, "the diversification of the group positions it well", with European market exposure to offer opportunities for sustained growth. Its target price was 814p price target
Among the others, Kingspan is seen pursuing further M&A and potentially benefitting from a favourable cost environment through 2018/19 as some of the significant inflation seen in 2017 subsides an on an improved supply environment. It was given a €37 price target.
Tyman, which "trades at an unjust discount to peers" given its well diversified model and self-help opportunities, was
given a 397p price target.
Polypipe, which has significant competitive advantages in its higher-margin fittings business, is delivering attractive margins and returns, yet business trades on a significant free cashflow yield discount to peers, it received a 426p price target.