GWA Group managing director Peter Crowley says the housing construction boom is filtering into sales of household products despite lacklustre revenue growth as GWA announced plans to divest underperforming businesses.
GWA, which sells household fixtures and fittings such as taps, kitchen sinks, doors and toilets, on Monday provided an unaudited trading update flagging an 11 per cent rise in pre-tax profit to $43.8 million on a 2 per cent rise in revenue to $576.7 million for the year ended June 30.
The anaemic revenue growth comes as sustained strong building approvals and housing finance data point to a robust housing construction recovery after years of underbuilding.
“We are concerned the small top line growth could be a result of market share loss given other companies like CSR and James Hardie have seen pretty good revenue growth lately,” Deutsche Bank analyst John Hynd said.
Mr Crowley said the increasing shift to apartment living means there is a longer lag time from lead indicators like building approvals to product sales.
He said GWA’s business is leveraged to the latter stage of a recovery given its products are sold after a dwelling is completed.
“The lead indicators are running very hard, but our products are sold at completion,” he said.
“It takes much longer to complete multi-residential buildings. It [the recovery] comes through slower than people may think.”
Mr Crowley pointed to Australian Bureau of Statistics data for the year to March that showed the moving annual total for housing starts is up 12 per cent on the same period last year to about 176,0000, but housing completions are up just 4 per cent to 153,000.
“In the March quarter, we started to see a pick-up. Bit by bit it is coming through. The recovery will be stronger for longer. I’m absolutely of the view that the next few years will be pretty damn good,” he said.
GWA said that its Dux and Brivis businesses - which supply water heaters, air conditioning and heating products - are considered non-core and it will consider returning “a portion” of the capital to shareholders if and when a sale is completed.
The company said its core bathroom, kitchen and door segments provide better “opportunities for future growth and improved shareholder returns”.
Sydney-based boutique Greenstone Partners has been appointed to run the sales process.
Moelis & Co. analyst Todd Guyot said Dux and Brivis have struggled for several years and it is positive the company is getting out of those business lines and focusing on its main operations.
“The attraction of GWA is the building and kitchens division which is 90 per cent of their net earnings,” Mr Guyot said.
Mr Hynd said Dux and Brivis are on the books for $70 million to $80 million and a sale price in the middle of that range would be a good outcome.
“A sale of the Dux assets may be difficult, given GWA’s major competitors already hold attractive market shares, and Dux may be losing too much money to achieve a full price,” he said.
In its unaudited trading update GWA said its net profit after tax of $18.6 million - compared with $32.4 million last year - was impacted by a $17 million restructuring charge to the Gliderol business announced in December. Trading earnings before interest and tax rose 8 per cent to $72.3 million.
The Dux and Gliderol garage door businesses have weighed on revenue.
Subject to the finalisation of its audited financial accounts, GWA expects to declare a fully-franked dividend of 5¢ a share.
The audited full-year result and final dividend end will be reported on August 19.
GWA shares rose 1.8 per cent on Monday to $2.77. The stock is up 14 per cent over the past 12 months compared with a 10.9 per cent rise for the All Ordinaries Index.
