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Grafton and Travis Perkins should merge says analyst

Grafton Group, parent company of builders merchants Buildbase and plumbers merchants Plumbase, should merge with fellow builders merchant Travis Perkins in the UK according to a senior Dublin analyst.
John Sheehan from NCB Stockbrokers said the move would save more than €500m thanks to the synergies between the two businesses.

Sheehan said the deal would give the combined group market leadership in both the UK and Irish market and make significant savings through operational efficiencies and greater purchasing power.

Talk of a merger pushed Travis Perkins shares up 18p to 501p by 4pm on July 10.

Grafton Group plc issued a six month trading update today showing that turnover for the six months to June 30 2008 was €1.4 billion compared to €1.6 billion in the same period last year.

In the UK, turnover increased by 6% to around £700 million. UK like for like sales fell by around 4.5% in May and June and 2% in the half year. The group in the UK has more exposure to the RMI market than to the volume housebuilding which has helped sales. The weakness in sterling against the euro (average euro/sterling exchange rate of 77.5p compared to 67.5p in 2007) meant that the increased sterling revenues translate into a decline in Grafton’s euro stated group accounts.

Turnover in the Group’s Irish business was €520 million in a more challenging market. The Irish merchanting market continued to benefit from a good level of activity in the RMI market which helped reduce the impact of the slowdown experienced in the new build market. Overall sales declined by 16% in May and June and at the same rate for the half year.

The Group has entered the second half of the year in a strong financial position with a reducing cost base and a profitable and cash generative business which is well placed to deal effectively with a challenging trading environment in the UK and Ireland at a time of continued uncertainty in the credit markets. The Group remains confident about the long term fundamentals and underlying value of its businesses in the UK and Ireland.

The Interim Results for 2008 are due to be announced on Friday August 29 2008.

About Fiona Russell-Horne

Fiona Russell-Horne
Editor-in-Chief across the BMJ portfolio.

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