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How safe is your money in DuluxGroup Limited?

It’s been a good year for DuluxGroup Limited (ASX: DLX).

The company, which makes paints and related products and owns major brands including Dulux, British Paints and Selleys, has seen its share price gain more than 25 per cent in the past year.

In financial year (FY) 2017 DuluxGroup’s revenue grew 4 per cent on the previous year to $1.78 billion while EBIT was up 6.5 per cent to a record $214.2 million.

DuluxGroup’s net profit after tax also increased, up 9.6 per cent to $142.9 million.

Additionally, the company’s cash conversion rate of 86 per cent for FY 2016 was maintained in FY 2017, allowing DuluxGroup to increase its full-year dividend by more than 10 per cent.

As such, DuluxGroup’s managing director, Patrick Houlihan, was able to tell shareholders at the company’s AGM on Thursday that DuluxGroup “finished the year very well placed, with strengthened market positions, good streams of growth and healthy financial metrics”.

And Mr Houlihan was able to tell shareholders that the company has had a good start to FY 2018.

“Group revenue is comfortably ahead of the same time last year, led by Dulux and each of our other Australian and New Zealand business segments,” Mr Houlihan said.

“Given all of this, we retain our outlook that, subject to economic conditions and excluding non-recurring items, we expect overall net profit after tax in FY18 to be higher than the FY17 equivalent of $142.9 million.”

But it appears some investors weren’t impressed with what the company had to say at its AGM, with the DuluxGroup share price dropping by about 1 per cent on Thursday.

DuluxGroup shares are trading for about 22x trailing earnings, slightly below the sector average of about 23x earnings.

And while shares in Reece Ltd (ASX: REH) change hands for about the same value as DuluxGroup, BlueScope Steel Limited (ASX: BSL) shares trade for around 12x earnings.

All this means that while DuluxGroup has performed well and looks set to continue doing so in 2018 it doesn’t offer the potential of BlueScope.

I would suggest that if you’re looking for exposure to the building sector then BlueScope is a better option while in the home improvement category Reece deserves a closer look.

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Motley Fool contributor Steve Holland has no position in any of the 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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