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Hanson: H1 2006 trading statement
Buildings materials company Hanson said operating profit was expected to rise by approximately 10% for the first half of 2006, despite a sharp decline in profits in its UK building materials business. Hanson reported operating profits of £197.3m in the same period last year.
Growth was driven mainly by a strong performance in North America and boosted by acquisitions. UK Aggregates, Australian and Continental European operations are said to have performed well and more than offset a weaker performance in UK Building Products.
The company made a total of eleven acquisitions at a cost of £508m during the period.
The North American business, helped by the still relatively buoyant housing market in the region, has reported improvements in margins and expects to report a 25% increase in operating profits in H1. The company has succeeded in increasing selling prices by 10%, passing on cost increases (particularly fuel costs) on to its customers, hence the improvement in margins.
Both North American divisions; aggregates and building products have experienced increases in volumes.
The rest of the company’s businesses are expected to report somewhat more modest results. UK aggregates operating profit, excluding acquisitions, is expected
to be slightly below last year due to weakening demand. UK building products have experienced a sharper slowdown in volumes, particularly due to reduced demand for bricks for repairs, maintenance and improvements. First half brick volumes are expected to be around 20% below the first six months of last year.
The lower volumes have been partly offset by higher prices, cost cutting, production cut backs and closures. Nevertheless, the company warned that operating profits in its UK building materials business would be half that achieved last year.
The company’s continental European business is expected to report a slight increase in operating profits while profits in Australia and the Asia pacific are likely to be flat.
The company is cautious in its outlook and seems to pin much of its growth prospects on North America. We tend to view the worldwide house market boom as nearing the end of its peak – North America remains the main market where house prices are still advancing. Some commentators have expressed the view that the US house market is about a year behind Europe’s in the cycle – and if this is correct Hanson’s medium term outlook is likely to be rather weaker than previously expected.
The share trades at 662p, on a prospective PE (2007 earnings) of 11.8x, in line with the sector with a yield of 3.5%.
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