GWA Group Ltd shares bolt higher on strong profit result

Credit: U.S. Army Corps of Engineers

The share price of GWA Group Ltd (ASX: GWA) bolted nearly 6% higher on Tuesday after the leading provider of building fixtures and fittings to households and commercial premises delivered to the market a solid interim profit.

For the six months ending December 31, the group reported from continuing operations…

  • Revenue growth of 4% to $220 million
  • Normalised earnings before interest and tax (EBIT) growth of 6% to $36.8 million
  • Normalised profit after tax growth of 19% to $24.1 million
  • Diluted earnings per share of 8.6 cents per share (cps)
  • A fully franked interim dividend of 7 cps. The record date for determining entitlements to the dividend is March 18 and the dividend is payable on April 5.
  • Net debt stood at $91 million at balance date, a decline of 12% on the prior corresponding period

Key takeaways

GWA via its leading bathroom brands such as Caroma, Dorf and Fowler is exposed to the new housing (both detached housing and higher density buildings) and renovation and replacement markets. Likewise, the group’s Door and Access Systems division is also exposed to these sectors plus the commercial sector.

Investors interested in the sector will watch building related statistics closely and also firms such as Boral Limited (ASX: BLD) and CSR Limited (ASX: CSR), as effectively these can be leading indicators of what lies ahead for GWA.

Is it a buy?

Chief Executive Officer, Mr Tim Salt commented that:

“We expect the market to grow in the second half albeit more slowly, off a high base, than in first half FY16. Based on current market conditions, we expect second half EBIT will be higher than 1HFY16 while operating cash flow will benefit from a reduction in working capital.”

The share price of GWA is down around 40% despite Tuesday’s rally which places the stock of a forecast price-to-earnings ratio of roughly 11 times and potentially a yield of over 7%. That would appear undemanding, however, investors do need to consider where the property cycle is headed.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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