DuluxGroup Limited (ASX: DLX), the maker of paint, coatings, home improvement and garden care products had an excellent first-half result. It reported a 33.6% gain in underlying net profit on a 16.5% revenue increase.
Here are five reasons DuluxGroup is moving ahead and why it could be a good stock for further growth in the property market.
1) Housing growth
The growing housing construction market is driving paint sales, its biggest business segment. Higher property prices push more buyers to buy newly built homes or build for themselves. DuluxGroup's revenue is rising like other building materials companies such as James Hardie Industries plc (ASX: JHX) and CSR Limited (ASX: CSR).
2) Strong brand names
Its well-known brands like Dulux, British Paints and Selleys Yates can be found in many DIY hardware stores like Bunnings Warehouse, operated by Wesfarmers Limited (ASX: WES), and Masters, operated by Woolworths Ltd (ASX: WOW).
Its product ranges have strong customer following, which keeps sales strong. More people are improving existing homes, especially to spruce them up for selling.
3) Improving margins push up earnings
Interim earnings were up thanks partly to managing operating costs in a number of DuluxGroup's businesses. For example, margin improvement programs created savings for the Selleys Yates segment even though its revenue was slightly down for the half year, resulting in a 15.7% rise in EBIT.
4) Alesco business earnings
Earnings growth also benefited from the full six-month contribution of its Alesco businesses, which it acquired in 2013. Alesco was a garage door company and added a new dimension to DuluxGroup's existing building materials and supplies business. The segment added $81 million in pro-forma revenue and $7.5 million in pro-forma EBIT.
5) Addition to ASX 100
In March, DuluxGroup was added to the S&P ASX 100 Index (ASX: ^XTO). This will potentially increase trading in its shares because more institutional investors and investment funds, which may be restricted from buying stocks outside of certain indices, will be allowed to trade in it.
Shareholders have seen about a 21% share price gain in the last twelve months. The housing market hasn't run its course yet, so investors wanting to position themselves for further growth may have a good opportunity now.
