GWA Group sees a bottom in housing

Restructuring and paying down debt is paying dividends.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published August 26, 2013 11:02 am AEST

GWA Group (ASX: GWA), an Australian supplier of building fixtures and fittings to households and commercial premises, announced a $32.39 million profit after tax for 2013. This was down 18.3% from $39.66 million, reflecting the continuing slowness of the market.

Net profit was affected by strategic re-positioning, with a $6.2 million restructuring cost after tax. The restructuring brought staff numbers down 14% through the business divisions changes. Dux Hot Water was combined with the Bathrooms & Kitchens division and Gliderol Garage Doors was combined with the Gainsborough hardware business.

The change is already showing benefits — productivity is up, and has added $8 million to operational cash flows in the second half of 2013.

During the year, it acquired API Locksmiths for $12.4 million. API Locksmiths is an Australian supplier of safes, locks, alarms and locksmithing services to major commercial enterprises.

Net debt was reduced by $12 million to $162 million due to better capital management, sale of non-core assets and decreases in capital expenditure. Its gross gearing is now at 45.7%. Current ratio is at 2.29, so current assets are more than double current liabilities.

Being intimately related to the housing market, the annual report shows how housing approvals, commencements and completions are all up since late 2012, based on BIS Shrapnel figures. A full recovering hasn't taken place, but we're no longer seeing new bottoms in the industry. When dwelling numbers increase, GWA Group and others like Reece (ASX: REH), a plumbing supplies distributor, and the Dulux (ASX: DLX) paint company will all see larger revenues.

A six cents per share dividend fully franked was declared, bringing the full year dividend to 12 cps. The share price is now about $2.90, which makes a dividend yield of approximately 4.1%. The return on equity has slipped under 10% at 9.05%, and net profit margins are down to 6.83% from 7.67%.

Foolish takeaway

The housing market is getting primed for the next turn up, and many housing related stocks are up recently in light of that. Investors must see the industry as a whole, note the major players, and position themselves now to achieve strong returns.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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