Daily ShareChat: Methven

By Jenny Ruth

Tuesday 8th December 2009

Tapware manufacturer and distributor Methven's first-half result was "remarkably resilient" with sales down only 5.2% and net profit down 3.2% despite underlying residential construction being down 20% to 50% in Methven's markets, says Craigs Investment Partners analyst Selwyn Blinkhorne.

While the company's gross profit margin fell from 41.4% to 35.5%, the operating margin only slipped from 13.4% to 12.5% because Methven cut overheads 21.9%.

"Methven our-performed most of our forecasts," he says to explain a 6.5% lift in his full-year forecast to $9.8 million which compares with $11.6 million in the year ended March.

Although Methven maintained its previous guidance that full-year net profit would be down between 15% and 20%, the first-half was down only 16% and residential construction data in New Zealand, Australia and Britain are all strengthening from a low base, Blinkhorne says.

From January 1, Methven is likely to loose the business from the Wickes DIY chain in Britain, which accounts for about 20% of its British subsidiary Deva's annual sales, because Wickes will begin importing directly from China. However, the Wickes business is low-margin and requires significant working capital, he says.

The company is focusing on marketing higher-value Methven branded products, such as selling its energy and water-saving Satinjet showerware to hotels, to replace the lost earnings from the Wickes business, he says.

BROKER CALL: Craigs Investment Partners rate Methven as buy.

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