Shareholders in the $2 billion paint manufacturer DuluxGroup Limited (ASX: DLX) will no doubt be pleased with what they saw yesterday in the full year results for the year ended 30 September 2014.
Here are some of the highlights
- Pro forma revenue increased by 3.6% to $1.6 billion.
- The Paints and Coatings division – which is the major contributor to group earnings – was a standout, increasing its earnings before interest and tax by 12.1% and expanding its margin from 16% to 16.9%.
- Net profit after tax but before non-recurring items leapt 21.4% to $111.9 million from $92.2 million the year before.
- The fully franked dividend was increased by 17.1% to 20.5 cents per share.
- Net debt declined by 11.1% to $345.7 million.
Outlook
Dulux is set to benefit from the ongoing buoyant levels of new home building, however, the group is also particularly well placed to benefit from the more resilient and profitable renovation market which is where DuluxGroup derives 62% of its revenues.
Commenting on the outlook, management described the housing sector as generally positive with lead market indicators largely positive.
The industry outlook in turn has led management to forecast that it expects profits to be higher in FY 2015.
Late cycle plays
As I suggested here, building material stocks such as Brickworks Limited (ASX: BKW) and CSR Limited (ASX: CSR) may not be the best way for investors to benefit at this stage of the home construction cycle. A better alternative may be to focus on late stage housing plays which will continue to benefit from increased housing activity for longer such as paint, furniture and fittings providers. As these are the last "touches" to finishing a house, stocks such as DuluxGroup, Harvey Norman Holdings Limited (ASX: HVN) and Fantastic Furniture Limited (ASX: FAN) may enjoy positive earnings momentum for longer.
