Marshalls could spring further upside surprise

Readers who followed the example of Marshalls chief executive Martyn Coffey, and bought Brexit-decimated shares in the landscaping and paving slabs firm last summer, will be sitting pretty today.

The stock plunged 39% to a 20-month low of 200p immediately after the referendum. But, as the shares bottomed out, Coffey and other directors piled in, with the boss picking up 10,000 at 212p.

Marshalls shares are now trading at 335p, having enjoyed a steady recovery since the summer. A 6% rise Wednesday in the wake of a 31% surge in annual profits to £46 million triggered a chart breakout, which could herald further gains. All of this means that Coffey is potentially sitting on a tidy paper profit of £12,400.

But for those not brave enough to consider Marshalls in the summer, analyst opinion suggests there's more to come from the company after its resilient performance in 2016.

Panmure Gordon's Adrian Kearsey has a 'buy' rating and target price of 370p on the stock, which he describes as one of the top picks within the construction materials sector.

He is impressed by the company's focus on enhancing the long-term position of the group, rather than squeezing the business for a short-term uplift in earnings.

Results beat expectations at Numis Securities, too, forcing analyst Chris Millington to upgrade forecasts and repeat his 365p price target. Despite trading at around 15 times forward earnings, a premium to the wider materials sector, Millington thinks this is justified "based on the strength of the balance sheet, historic and prospective profit growth rates and upgrade potential".

The positive mood was helped today by a 30% jump in the dividend payout to 11.7p a share. This included a supplementary dividend of 3p in recognition of its strong performance last year.

Marshalls also pointed to a number of positive trends for 2017, with strong sales and order intake in January and February and the Construction Products Association reporting a slight improvement in medium term growth outlook.

The company has been supplying natural stone and concrete products to the construction, home improvement and landscape markets since the 1890s.

As well as serving DIY enthusiasts, professional landscapers and garden designers, Marshalls' public sector and commercial markets arm works on a number of high profile projects, including Crossrail.

At Wembley Stadium, for example, it was asked to provide light stacks which would help naturally disperse the gathering of crowds and ensure safe access to and from the nearby station.

In the public sector and commercial business, which accounts for 64% of trade, sales were broadly in line with the prior year. However, based on public indicators, Marshalls believe it continues to outperform its peers and gain market share.

Sales to the domestic end market were up 10% last year, driven by a much stronger second half when sales were up 14%. A survey of domestic installers at the end of February revealed order books of 10.9 weeks, which compares with 11.7 weeks at the end of June 2016.

Raising his 2017 profit estimate by £1 million to £49 million, Kearsey noted a positive trend on margins from 7% in 2014 to 12% in 2016.

He added: "Given the margin story, we believe Marshalls will continue to surprise on the upside."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.