Flying Marshalls tipped to go higher

When I last met Martyn Coffey it was one week before the EU referendum. The Marshalls CEO was in confident mood and talking about a paving slabs business in great shape and with plenty of promise. Nothing has changed when we next chat about today's half-year results, despite the share price collapse in the aftermath of the Brexit vote.

"We see the sales and orders daily, and right up until today you couldn't see a Brexit event," he told me. A hot line set up to deal with cancellations from domestic clients following the referendum has been "very quiet".

Marshalls' shares plunged 39% in the post-Brexit crash, down from 328p on polling day to a 20-month low of 200p. But they're up as much as 7% on these numbers for the first half of 2016 to a three-month high. That'll please management who piled in as the shares bottomed out, among them Coffey who snapped up 10,000 at just 212p!

Last month, we were told that sales actually improved during May and June, and that underlying indicators remain positive. That's borne out in figures showing pre-tax profit up 21% at £25.1 million on revenue 2% better at £202 million.

"Increased uncertainty has not impacted underlying trading to date although we continue to monitor closely the wider business environment," Coffey said Friday. "The board is confident of achieving its expectations for 2016. The group has continued to experience strong order intake during the second half."

Cost-savings and better efficiency improved operating margin by 170 basis points to 12.8%, earnings per share (EPS) increased to 10.36p from 8.5p and the interim dividend shoots up 29% to 2.9p.

Marshalls' domestic division, serving DIY enthusiasts, professional landscapers and garden designers, grew sales by 7% and orders still stretch out almost 12 weeks. Private sector investment is strong, too, and the huge Cross Rail project will be worth "tens of millions of pounds" to Marshalls over the next couple of years. A public sector starved of funds remains a drag.

"August is going fine," Coffey tells me, so he's confident of doing the full-year numbers. Avoid any impact from the Brexit scenario and forecasts may be conservative.

Peel Hunt is looking for a 22% increase in adjusted pre-tax profit in 2016 to £43 million, giving EPS of 17.4p. It's tipped to hit £42 million and 21.3p, respectively, the year after. Marshalls trades on a forward price/earnings (PE) ratio of 18 times, dropping to less than 15 on 2017 estimates.

Analyst Clyde Lewis thinks the shares are worth 355p, but Chris Millington at Numis Securities is more bullish. The price could hit 400p in time given Marshalls' "sector leading profit growth" and strong balance sheet, he writes. "We do not think that the 14.5x PE for Dec 2017 is expensive and we move from 'add' to 'buy'."

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