Alumasc (LON: ALU) shares are receiving little credit for the company’s repositioning as a focused building products manufacturer. Over the last six years the company has grown revenues by 8 per cent a year, outperforming the 2 per cent industry growth rate; while earnings have more than doubled. Yet the shares trade on a prospective p/e of just 8.2 times to June 2018 and yield over 4 per cent following a 10 per cent hike in the dividend.
It’s true to say that building and construction remains a cyclical business, but Alumasc has concentrated on value-added products rather than the commodity end. Virtually all its output is either architect-specified or fulfils a regulatory requirement. For example, its fast-growing Levolux arm provides solar shading for commercial buildings, which helps improve energy consumption as well as aesthetics. Rainwater management is another area of specialisation where conservation and control of water in large projects need a sophisticated solution.
There were a few issues last year however related to raw material prices. The depreciation of sterling had an impact and steel price rises hurt the Gatic drainage business. Happily margins saw a recovery in the second half as price rises were put through and operational gearing came through. One benefit of lower sterling is being felt in export sales. These doubled last year to 17 per cent of the group. There was a large $5 million contract in the US for Levolux which will provide a tough comparison this year but North America should still make progress with additional investment in sales staff.
Strong order book
Overall the order book and pipeline are said to be ‘strong’, despite only modest improvement forecast for the UK construction market. Speaking to management they feel there are plenty of organic growth opportunities, both in export and domestic markets. Capacity is being increased at Timloc and there are plans to expand the Water Management facilities. Net cash of £6 million also means there’s scope to acquire if the right opportunity comes along.
While it was understandable for the shares to have a wobble in the wake of the referendum and the first half margin pressure, the stock has only recovered to where it was two years ago. With the attractive yield it’s well worth a look.