Landscaping products firm Marshalls is looking to re-balance production to meet stronger demand in the south east of the UK, after posting revenue and profit gains that topped market expectations.
Continuing revenue for the year ended 31st December 2011 was £334.1m (2010: £308.8m), which represented a year-on-year increase of 8.2% from one less trading day. The market had been expecting turnover to be around £332m.
Sales to the public sector and commercial end market, which represent approximately 64% of Marshalls' sales, were up 9% for the full year.
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Sales to the domestic end market were up 7% compared to the prior year. International sales now represent 3% of group revenues.
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Operating profit, excluding net gains on asset and property disposals, was up 22.1 per cent at £15.3 million (2010: £12.6 million).
Profit before tax jumped 32% to £13.7m from £10.4m in 2010, comfortably ahead of market expectations of £12.1m.
Earnings per share (EPS) had been tipped by analysts following the firm to rise to 5.15p but Marshalls once again surprised to the upside, with EPS of 6.30p, up 50% from 2010's 4.21p.
Marshalls says it needs to alter production patterns to take account of the higher demand in the south-east and minimise distribution distance.
The firm's Chief Executive Graham Holden, said the group had benefited from a wide customer base and the strength of the Marshalls brand.
"Marshalls continues to be well placed to outperform the market in the short term and to benefit more strongly from operational gearing, once market conditions improve," Holden declared.
The shares had risen 1.2% by 11:57. Over the past year the stock has fallen 10.2%.
Broker Northland Capital Partners said that despite the projected slow recovery in earnings, partly caused by the return to a more normal tax rate over the next three years, the group has clear attractions, and notes that it is one of the few building material stocks left on the UK stock market.
"It has aggregate reserves and downstream product integration that ensures considerable value added on top of the intrinsic value (understated in our view) of the hard rock and sand and gravel the group owns and controls," suggested Northland analyst Simon Brown.
"The balance sheet forward net debt of c. £88m and the strong cash flow characteristics of the group should enable new products to come through to the market to shore up the performance of the group relative to the underlying market. We retain an ADD rating and a TP [target price] of 110p," Brown said in a note released in the wake of the results announcement.
Peel Hunt, which rates the shares a "hold", believes that "Marshalls will deliver the hoped-for, high operationally geared recovery, but just not yet."
In the view of Peel Hunt's Robin Hardy, the group is treading water at the moment, waiting for the market to pick-up, although it is busying itself with "strong self-help initiatives".
"Strong asset backing and yield backstop the share price but a PE [price/earnings ratio] of c.20x limits the upside," in Hardy's view.
BS
