What: Australia's leading supplier of building fixtures and fittings GWA Group Ltd (ASX: GWA) isn't exactly a stock on most investors' radar, however, the stable of brands owned by the group are certainly well known and include Coroma, Dorf and Fowler.
So What: GWA has been going through a process of simplifying its business with non-strategic and non-core assets being put up for sale. In the past year this has led to the group divesting its Brivis Climate Systems business to Rinnai Australia for $49 million, the sale of its Dux Hot Water business for $46 million, and the announced intention to sell its Gliderol Garage Doors business.
The proposed and finalised asset sales are bolstering GWA's balance sheet and have led to the board announcing capital management initiatives.
This week, GWA confirmed that subject to shareholder approval the company will return $88.282 million to shareholders, which equates to 28.8 cents per share (cps), via a combination of a 22.8 cps return of capital and a 6 cps partially franked special dividend.
Now What: With a shareholder vote yet to be held there is ample time for investors to position themselves to receive a slice of this $88 million if they wish. Post the return, GWA is expected to have a balance sheet which has $150 million of debt and $314 million of equity.
Importantly, based on management's guidance for the full year (provided at the half-year results) the group is on track to achieve earnings before interest and tax (EBIT) of $70 million. Given the board's proposal to conduct a proportional share consolidation, the number of shares on issue post the return of capital and special dividend will be 279 million. At the current share price of $2.50 this implies a post consolidated enterprise value to EBIT of approximately 10x.
While companies such as CSR Limited (ASX: CSR) and Boral Limited (ASX: BLD) are building material suppliers who benefit in the early stage of construction, GWA should benefit as a late-stage supplier into the currently buoyant new home and apartment building market. If you believe GWA is set to benefit then the current pricing of the stock is arguably quite appealing and could be worth a closer look.
