Alumasc released a set of interim results that showed good top-line progress but a few headwinds which held back profit growth. If these prove to be temporary, as the company suggests, then the shares offer very good value.
Overall sales were up an impressive 17 per cent. However operating profits were only modestly ahead, representing a 1.5 percentage point decline in margins to 7.9 per cent. The main culprit was a rise in raw material costs, a lot of which is currency driven. Historically the company has been able to push such cost increases through by raising selling prices, but there’s an inevitable time lag.
Good sales momentum
The company is also investing in its salesforce to grow Levolux solar shading business, which is boosting the revenue line but diluting margins in the short term. Levolux however should see a much stronger second half as significant contracts complete and the longer term outlook is good with high levels of order intake. Elsewhere roofing and Walling achieved record sales and Water Management grew 6 per cent. One upside from weaker sterling is a more competitive export position. Levolux is growing in the US while Gatic exports water drainage products worldwide.
The bottom line is that management expect to get back to 2016 margin levels next fiscal year which runs to June 2018.
Shares offer good value
It’s always a concern when a strong second half is required to meet expectations but in Alumasc’s case that good sales momentum and order pipeline provide a lot of comfort. Assuming the price increases are sufficient and contracts complete on time, the stock will be left looking too cheap on a p/e of under 8 times June 2018 earnings. There’s also a very handy 4 per cent yield, with the interim dividend raised 5.6 per cent.