Growing in branded building products
Eurocell (L:ECEL) floated on the London Stock Exchange earlier this year with a growth agenda driven by a number of internal initiatives. Its vertically integrated model brings enhanced margin opportunities balanced between manufacturing and distribution activities. H115 results demonstrated good profit progress consistent with management’s full year expectations.
Tangible progress as an independent company
The established management team participated in a PE-led acquisition (from Tessenderlo (BR:TESB)) two years ago and proceeded to accelerate business integration (with closer divisional links under a common brand), new product development and branch network roll-out. It also outsourced warehousing and logistics and put a new PVC resin supply contract in place before the IPO in March this year. Maiden interim results (H115, announced in August) demonstrated good gross and underlying EBIT margin increases (to 52.2%, +420bp and 12.7%, +170bp respectively) despite flat y-o-y revenue. Interest costs were well covered in the period and Eurocell’s net debt was £33.3m at the end of June.
Multiple sources of growth
UK RMI spending is yet to demonstrate a sustained upswing, although housing market and personal disposable income and wealth trends are positive in our view. Without waiting for improved conditions, Eurocell is targeting growth from a number of sources. These include share gains in fragmented markets, new product revenues (eg in skylight and conservatory roofing), range extensions (eg rainwater goods) and a near doubling of the branch network (from c 138 currently to c 250 in due course). Acquisitions are also being sought that fit in with the value chain and service proposition that the company currently offers. In July, S&S (a specialist injection molder) was brought into the group.
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