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BPB
Plasterboard and gypsum manufacturer BPB’s last interim results were good and expects strong growth in its full year to March 2004, according to its latest trading statement. BPB expects turnover for the year to March 2004 to grow by about 6% to £2.3bn driven by growth in plasterboard demand (volumes are up 5%) increased plaster volumes (up 6%) and improved selling prices. Underlying operating profits are expected to be up more than 20% to around £305m.
The company’s main products include plasterboard and accessories, plasters and other building materials, and accounted for approximately 64%, 16% and 20%, respectively, of BPB’s total turnover last year. BPB operates all over Europe and North America.
BPB has performed particularly well in the North American market with operating profit up nearly 75% to about £70m (2003: £40.1m), despite a higher restructuring charge, patent protection costs and adverse currency translation, due to a substantial improvement in prices (up almost 25%) and strong regional demand for wallboard.
Growth in the larger European market was more steady, with operating profits up more than 10% to over £215m (2003: £193.9m), benefiting from continuing strong demand and high plant utilisation levels, better pricing and improved performance in Germany and the Nordic countries.
The first half (H1) results were good with turnover up 5.7% in sterling terms (10% in local currencies) and with volumes growing by 7%.
Turnover growth was strongest in North America (+8.1%), followed by Central and Eastern Europe (+5.6%) and Southern Europe (+2%). The relatively small market in the rest of the world grew by 14.7%.
Growth in operating profits was more mixed with North America accounting for almost 60% of the growth, the other markets contributing in roughly equal proportions. Margins have improved in all markets including Northern & Western Europe where sales were flat. The overall operating margin was 13.5% compared to 11.2% last year.
The full year results should be impressive but higher commodity prices as well as a possible slowing of markets are a concern. While the US construction sector is still expanding, the UK is looking distinctly sluggish.
The company’s dominant position in the market has enabled it to reap the full benefit of an expanding market as testified by the growth in volumes and margins. The dominant position, particularly in Europe does however mean that growth is most likely to come from the emerging markets of America and the rest of the world - something that is already evident. A further weakening of the US dollar is likely and will tend to make the company’s products more expensive which will impede growth as well as reported earnings (currency fluctuations cost £18.7m or 12.6% of operating profits in H1).
The main downside to the stock is that of the industry-a slowdown most likely to be triggered by the bursting of the house price bubble in the UK, Italy, Spain, South Africa and America where house prices are looking distinctly frothy. (BPB operates in all these countries.)
Trading at 517.25p the prospective PE of 12.5x is at the upper end of the sector range, the yield is 3.1%
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