Make haste slowly
The city is a fickle creature isn’t it.
I’m talking about financial terms in this sense, the City being the City of London, the financial hub of the UK.
Wolseley plc’s share price rocketed when it was revealed in a trading statement that profits are likely to be better (in the sense of ‘not as bad’?) than expected.
Whereas Travis Perkins has consistently said that it expects the road to recovery to be the long way round rather than a short cut, with slow but steady improvement likely this year, but turnover and profits down for 2009. And what happens? The share price suffered on the grounds that the group did what it said it would do. That is, return lower turnover and profits for shareholders. Oh, and no dividend.
But if you look behind the headline figures, you see that – despite the revenue drop – it is all about Travis doing what it has consistently done for years, very well. That is, the gross margins have held up – even as Geoff Cooper says, at the expense of turnover. He believes, not unreasonably, that the national merchants have lost ground to independent merchants throughout the recession. He says that independents are more willing to turn to lower margin business when things get tough, whereas TP has stuck to its guns in maintaining, so far as possible, gross margins.
Well, I suppose that’s right too, although I think much of the success of the independent sector lies in its very independence. The smaller merchants have the flexibility to go out and hunt for new business that doesn’t necessarily fit their traditional picture. They have the flexibility to take on business at shorter margins that they might otherwise desire.
While the nationals have had the benefit in the past of deep pockets to fund acquisition-fuelled growth, they all put the kybosh on acquisitions once the full extent of the recession became apparent. Nevertheless, TP only shut around three out of some 1,300 outlets and will expand this year and next year. We’re going to see the addition of new Toolstation stores, more Tile Giant ceramics stores, as well as a number of Benchmarx, the joinery specialist branches.
Slow, steady, cautious growth has to be the way to climb out of the mess that construction is in. The CPA is forecasting that it will be 2012 before we see any real construction growth and the uncertainty that always surrounds a general election is not going to mean any quick return to prosperity. So, slow and steady will probably be the way to go.