How's that dividend? GWA (ASX:GWA) share price falls despite 17% payout bump

It appears investors were chasing more from the water solutions company today.

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Key points

  • GWA reported its earnings today with a robust set of results compared to the prior corresponding period 
  • The company declared a higher dividend and grew earnings but it seems investors were expecting more 
  • The company's shares finished the day down almost 2% 

The GWA Group Limited (ASX: GWA) share price closed 1.92% lower on Tuesday at $2.55.

Shares in the water solutions provider headed south after the company reported its results for the half-year ended 31 December 2021.

Let's take a closer look at what the company revealed.

GWA share price tumbles despite profitable half

The company came in with a number of investment takeouts, including:

  • Group revenue up 2% to $201.3 million, with Australian revenue alone climbing 6%
  • Normalised group earnings before interest and tax (EBIT) of $35.6 million, up 11% on the prior year
  • Normalised group EBIT margin lifted by 140 basis points during the half
  • Normalised net profit after tax (NPAT) of $22.4 million, up 12% year on year
  • Reported NPAT (including significant items) of $18.6 million, up 1% from the same time last year.

What else happened this period for GWA?

Operating cash flows came in stronger this half with normalised group EBIT gaining 11% year on year, resulting in a 1.4% gain in EBIT margin.

The improvement in earnings came despite the significant increase in freight costs compared to the prior corresponding period, GWA says.

As a result of the efficiencies, the group's $201 million in revenue carried through to NPAT of $22 million, a 12% gain on the year.

This enabled the board to pay a fully-franked interim dividend of 7 cents per share, a 17% gain on the prior corresponding period. Investors can expect the dividend on 4 March 2022. Notably, the company's Dividend Reinvestment Plan will not be offered to shareholders for the interim dividend.

GWA held a net debt load of $104 million as of 31 December, in line with the figure of $104.8 million from the same time last year.

The company has also been active in improving its credit metrics, with the gearing ratio of 21.2% contracting by around 30 basis points year over year. It also held adequate liquidity for operations in 2022, according to the company's release.

"In October 2021, GWA successfully completed the extension of its syndicated banking facility which comprises a single three-year multicurrency revolving facility of $180 million which matures in October 2024," it said.

Cash flow from operations also came in stronger than last year at $43.6 million, compared to $49.7 million in 1HFY21.

Management commentary

Speaking on the announcement, GWA's Managing Director and CEO Urs Meyerhans said:

Throughout the period, we continued to operate within the COVID-19 impacted environment with the health and safety of our people and customers remaining as our first priority. We continue to implement our operational procedures to safeguard our people while minimising disruption to our customers to the extent possible.

Following an increase in the Lost Time Injury Frequency Rate (LTIFR) in FY21, GWA has implemented customised training strategies primarily to address the root cause to reduce manual handling injuries.

What's next for GWA?

The Company expects "continued momentum in all its key markets, particularly in the Renovation & Replacement segment both for residential and commercial".

However, in the same breath, it notes labour availability and global supply chain disruptions have "extended the timing of completions particularly for new detached projects from around 9-12 months to 12-15 months".

As a result of these disturbances – which are actually tailwinds for the company – GWA expects its completions activity to remain strong into FY23.

GWA also says it remains on track to deliver annualised supply chain savings of $3 million from FY22 with $2 million achieved in the first half of FY22.

"For FY22, GWA currently expects Group Normalised EBIT in the second half will be higher than the first half, subject to any potential further impact of the general economic environment," the company concluded.

GWA share price snapshot

The GWA share price has lost more than 31% over the past 12 months, sliding more than 7% year to date.

At its current share price, the company has a market capitalisation of around $676 million.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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