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Why the Simmonds (ASX:SIO) share price will be on watch today

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Simonds Group Ltd (ASX: SIO) shares will be on watch this morning following the release of the company’s first-half results late yesterday. At Tuesday’s market close, the Simonds share price finished the day flat at 63 cents.

Let’s take a look and see how the home builder performed for the period.

What could impact the Simonds share price today?

The Simonds share price could come under pressure today after the company reported a drop in its key business metrics.

In yesterday’s release, Simonds advised that revenue and earnings took a hit due to COVID-19 impacting trading conditions.

For the six months ending 31 December, Simonds delivered total revenue of $325 million, down 0.8% from the prior corresponding period. The slight fall was attributed to the effects of COVID-19 restrictions on site productivity. However, the company recorded 1,172 site starts, which was 29 starts above the comparative period in H1 FY20.

Although Simonds’ home results saw a 1.1% dip in revenue to $318.1 million, its education segment rose strongly to achieve growth of $5.7 million, up 22.8%. The sound performance was underpinned by the take up of a virtual classroom delivery model, growing 72% in the first half of FY21.

Earnings before interest, tax, depreciation and amortisation (EBITDA) dropped to $14 million, a decline of 11.9% from this time last year. The company invested in new sales channels and increased its marketing spend which offset the additional margin obtained in H1 FY21.

The builder reported that net profit after tax (NPAT) from continuing operations sank to $1.9 million, shedding a mammoth 53.7% compared to the pcp.

The company generated net cash flows of $2.8 million, plunging 39.1% from H1 FY20. The poor result came from the ill timing of cash collections and payments.

Simonds closed the calendar year with a cash balance of $31.1 million. The group’s headroom stood at $56.1 million with undrawn facilities on hand to weather any future crisis.

In a move that could possibly weigh down the Simonds share price today, the board declared that no interim dividend will be paid to shareholders.

Management commentary

Simonds group CEO and managing director Rhett Simonds touched on the first-half results amid challenging COVID-19 trading conditions. He said:

The ability of our customers, staff, suppliers, and sub-contractors to adapt in these conditions has ensured the Group could continue to generate positive cashflows. We remain focused on improving and delivering sustainable operating performance through cost efficiency, increasing sales through our traditional display homes and expanding through digital channels, as well as investing in new business channels.

Our business, like many others across the housing sector, has benefitted from government stimulus and in particular the Federal Government’s HomeBuilder program. This has helped to mitigate the impact of the lockdowns initiated in each of the geographic areas the Group operates.

Outlook

Looking ahead to the current second-half, Simonds predicts COVID-19 to continue having an impact on its earnings. Government-mandated measures such as restrictions on access to sites and display centres as well as supply chain constraints are expected to remain.

The company noted that robust demand for the government’s HomeBuilder stimulus package may prolong build times and impact trade rates. Despite the volatility, the group is forecasting positive growth through to FY22.

Simonds share price snapshot

Over the last 12 months, the Simonds share price has gained 70% reflecting positive investor sentiment in the market. Simonds shares hit a low of 20 cents in March, before strongly rebounding to their current levels.

Based on the current share price, Simonds has a market capitalisation of around $90 million.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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