Why the Simonds Group Ltd share price jumped 6.1%

Simonds Group Ltd (ASX:SIO) is benefiting from its position as the number one home builder in Victoria.

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While the company Simonds Group Ltd (ASX: SIO) might not be that familiar to investors, as one of Australia's leading homebuilders the company has certainly built itself an enviable brand name.

Since listing via initial public offering in November 2014, the stock has failed to trade above its float price of $1.78 which will of course disappoint IPO investors.

Finally, shareholders have something to smile about with Simonds announcing that its full year results had exceeded prospectus forecasts – this news led to a 6.1% jump in the share price to $1.48.

Here's what got the market excited: Pro-forma revenue increased 16.7% to $634.4 million, while pro-forma net profit after tax jumped 80.3% to $21.1 million. Meanwhile, net debt was maintained to just $2.8 million.

Drivers of these results included: continued strong revenue and margins in Victoria and South Australia, a maturing growth strategy in Queensland and New South Wales, and positive expansionary developments in its associated vocational training business.

  • Simonds Homes Australia (the building division) recorded 12% growth in revenue to $600.2 million and pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) of $24.7 million.
  • Builders Academy Australia (the vocational education division) reported a rise in revenue from $3.8 million to $23.2 million. Pro-forma EBITDA was a stunning $10.4 million.

Two more positives: Beating prospectus forecasts with a strong profit result and reporting positive momentum in the business divisions is good news in its own right, however, there were two more highlights from Simonds' results worthy of a mention.

  • Firstly, the board declared an inaugural fully franked final dividend of 5.3 cents per share.
  • Secondly, the board announced a share buy-back of up to 5% of total shares outstanding with the CEO noting that: "The buy-back is an effective method of maintaining adequate capital where SIO's shares are trading at a significant discount to the underlying value of the Company. "

The buyback is a very positive development and shows that management are seeking to maximise shareholder value. With a positive tailwind from the property market, an industry-leading position and a subdued share price, Simonds could be a stock for the watch list.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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