By Jenny Ruth
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Monday 14th June 2010 |
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Methven's annual result was creditable and in line with his forecasts, even though adjusted net profit fell 12% to $8.3 million, says Adrian Allbon, an analyst at Goldman Sachs JB Were.
Australia was the star performer while the New Zealand operations showed resilience in face of the downturn with sales up 4% despite the renovation market being down 2%. The British operations were the "problem child," particularly after losing a major customer, the Wickes home improvement chain.
"The recession has exposed a Methven weakness relying on the DIY sector with a value product range. Methven is now fast-tracking its UK transition to its proprietary model and targeting hotels, upmarket showrooms and plumbing merchants to diversify its sales origination," Allbon says.
Methven's retro-fitting of hotels with its water-saving technology combined with its recently acquired Jemflo technology, which regulates hot and cold water flows, "significantly enhances Methven's investment case," he says.
It will provide a meaningful medium-term growth opportunity outside the cyclical demand recovery in its key markets. The largest 300 hotel chains worldwide account for 7.3 million rooms.
"If successful, the hotel sector will diversify Methven's sales origination from merchants/DIY."
The core technologies are already developed so future capital requirements will be mainly to develop sales relationships and working capital.
Recommendation: Buy.
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