The latest trading update shows that all three reporting divisions are continuing to progress well and management expectations for the year are unchanged. Polypipe Group (LON:PLP) is a well-positioned business and management succession indicates continuity of the strategic approach. A premium rating to the sector is warranted, in our view.
Firm market conditions, organic growth continuing
AGM comments confirmed that the first four months of the year were ahead of the previous year (revenue +4.6% l-f-l, +6.0% actual) with underlying progress from both UK and overseas operations. Implicitly, UK comparatives for this period have been adversely affected by pricing-related demand pull-forward into April 2016 and also December 2016; in this context, market conditions remain favourable. Given reference to some initial phasing delays in road infrastructure, we assume then that the revenue run rate for Residential Systems is trending above the 7.1% noted. New housebuilding continues to be the dominant driver here and demand for below-ground products is a good lead indicator for other lines used later in the build. Rising input costs (chiefly currency related) have been a feature of the building products sector from H216 and increased selling prices are progressively recovering this inflation. Reported margins will be influenced by these pricing moves and favourable translation over lower-margin overseas earnings, with growth in the higher-margin residential segment mitigating some of this dilution. Management’s full year expectations and our estimates are unchanged.
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