March 3 (Bloomberg) -- Grafton Group Plc expects profit to improve this year, as a recovery in the U.K. housing market helps to boost demand for building materials, the company said in a statement today.
U.K. like-for-like revenue rose 8 percent in the first two months of the year, Executive Chairman Michael Chadwick said in a telephone interview. The Dublin-based operator of home-improvement stores said net income for 2010 rose more than fourfold to 64 million euros ($88.8 million), from 13.4 million euros the previous year. A one-time tax credit of 38.4 million euros helped boost profit.
“In the U.K., the market has started to recover from the lows,” said Chadwick. “We would be optimistic that our Irish merchanting and retailing businesses can stay profitable.”
Grafton shares fell 5.1 percent, the most since August, to close at 3.62 euros at the 5:10 p.m. close in Dublin trading. The stock has climbed 48 percent in the past 12 months, giving the company a market value of 838 million euros.
Flor O’Donoghue, an analyst at Dublin-based securities firm Davy, said in a telephone interview he lowered his rating on the stock to ‘neutral’ from ‘outperform’ today, citing lower than expected margins at Grafton’s U.K. merchanting business and the recent share gains.
Grafton generates more than 70 percent of its sales, and almost all of its profit, from its U.K. business, according to Chadwick. Grafton’s sales rose 1 percent, to 2 billion euros, while operating profit, before reorganization costs and amortization and impairment charges, rose 93 percent to 50.6 million euros.
The Irish housing market is probably more than 90 percent below the peak and remains “very, very weak,” though it may have “bottomed,” Chadwick said. A recovery may begin to emerge in the next two to three years, he added.
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