Shares in housebuilding and construction company Galliford Try (LSE: GFRD) rose by 6% this morning, after the group said pre-tax profit rose by 18% to 135m last year.Earnings per share rose by 17% to 132.5p. The groups total dividend was increased by 21% to 82p, giving a dividend yield of 6.9%. Net debt fell from 17.3m to 8.7m, while return on net assets rose to an impressive 25.3%.
Market conditions during the 12months to 30 June were very favourable for Galliford. But the UKs Brexit vote means many investors are more interested in trading conditions since the EU referendum.
Galliford said this morning that its Linden Homes housebuilding business had seen a short-term dip in interest following the referendum, following which sales rates and prices returned to growth.
However, whats interesting about Galliford is that it has three divisions. Galliford also partners with housing associations to build new affordable and rented developments. The group believes that the prospects for this business are excellent. Id imagine that the high demand for affordable homes means that this sector could do well even if the housing market slows.
Gallifords construction arm also has the potential to perform well in a housing downturn. Public sector and regulated businesses such as utilities account for 90% of its 3.5bn order book. With infrastructure spending expected to rise under the current government, Galliford believes its construction business has a strong and reliable outlook.
Is Galliford a buy? The shares trade on a forecast P/E of just 7.5 for the year ahead. Galliford is targeting dividend cover of 1.6 times next year, which implies a dividend of about 93p. This would give a yield of 7.7% at todays share price.
I believe Gallifords diversity could make it a safer buy than conventional housebuilders in the current market.
Will spending backlog boost profits?
AIM-listed Epwin Group (LSE: EPWN) makes home maintenance products such as doors, windows and guttering. Pre-tax profit rose by 37% to 10.4m during the six months to 30 June, while the groups underlying operating margin rose by 1.8% to 8.2%.
Net debt rose from 14.4m to 29.9m thanks to an acquisition and investment in a new window range. Im not too concerned by this yet, but given the uncertain market Id expect Epwin to focus on reducing debt before making any further acquisitions.
One of this stocks main attractions is its dividend. Epwins interim payout rose by 3.8% to 2.2p today. Consensus forecasts suggest that a full-year payout of 6.58p is expected for 2016, giving a prospective yield of 6.2%.
Epwins fortunes are obviously tied to those of the housing market. However, the groups business is fairly diverse: itsells into both the new build and the repair and maintenance markets, to both retail and trade customers.
The companys view is that theres a significant backlog of underinvestment in the UKs housing stock thatshould support future trading. My concern is that while I agree a lot of older housing needs updating, many property owners may be unwilling or unable to spend this money.
The market appears to share my cautious view: Epwin shares have risen by 3% today, but trade on a 2016 forecast P/E of just 8. Based on todays results, Id rate the shares as a hold.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
