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Grafton Group's Leyland SDM purchase "a very sensible deal", Numis says

Last updated: 10:22 19 Feb 2018 GMT, First published: 08:19 19 Feb 2018 GMT

Leyland SDM
Grafton said the Leyland SDM "small box" convenience trading format is a proven business model in central London

Grafton Group PLC (LON:GFTU, ISE:GFTU), the merchanting and DIY group, has acquired LSDM Limited, London's largest independent specialist decorators' merchant for £82.4mln.

The Leyland SDM network comprises 21 convenience-led stores, situated in some of London's most prominent locations including King's Road, Chelsea; High Street, Kensington; Shaftesbury Avenue; Victoria; Clerkenwell; and Notting Hill. 

In the last two years, it has further expanded its footprint with four new stores opened in Battersea, Mile End, Clapham High Street and Putney and has opened a new distribution centre at Wembley.

Its revenue on 2017 clocked in at £47.8mln while earnings before interest and tax totalled £7.3mln. Its gross assets are estimated at around £10mln.

"The acquisition of Leyland SDM is a unique opportunity to acquire a leading brand with exceptional locations in Central London and expands our presence in a resilient segment of the merchanting market located at the heart of one of the world's leading cities," said Gavin Slark, chief executive officer of Grafton.

Sensible deal

Numis Securities said the acquisition looked like “a very sensible deal”.

“The scope to provide specialist products into London provides an interesting 'small box' complement to Selco in this market, where - as with Grafton’s Dutch operations, which also provide a specialist merchanting offering - management track record is excellent. Moreover, the acquisition provides another area where bolt-on and organic growth by branch will complement Grafton’s existing growth portfolio, adding a positive dimension in the flat backdrop we expect in the UK market overall,” the broker said.

Numis raised its estimates for the current year by 2.8% to account for the acquisition; it is now forecasting profit before tax of £153mln and earnings per share of 52.4p.

“In addition to there being scope to continue to roll out LSDM branches inside London, longer term there is no reason why the business could not see acquisitions and wider roll-out into other major metropolitan areas. Moreover, providing "small box" locations alongside Selco's 30 depots inside the M25 suggests to us that there may be scope to increase product range exposure into inner London markets through LSDM,” the broker said.

Liberum Capital Markets said it expects earnings per share should be boosted by around 2% as a result of the merger, before taking into account any synergies.

Grafton’s shares were up 1.9% at 767p in mid-morning trading.

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