Water, or water management, has been a public concern for some time, whether its floods or droughts, or “the very disappointing” performance (to use the Regulator’s words, not The Armchair Trader’s) of the privatised water companies in preventing pollution, managing supply or treating sewage; water is never out of the news.
Genuit LON:GEN the FTSE-250 listed, drainage and ventilation products manufacturer based in Doncaster manufactures “engineered solutions” for the construction industry and is at the forefront of Sustainable Building Solutions and Water Management Solutions.
Genuit, like its peers in the market like Tyman LON:TYMN, which The Armchair Trader wrote about yesterday, has had a difficult few years. Having to deal with the shutdown caused by Coronavirus in 2020 to 2022, and the subsequent supply global chain issues and then inflation and cost-of-living pressures has made it difficult to turn a coin in the sector. It never rains, but it pours.
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Despite this Genuit reported “resilient” performance in its last trading update at the start of last month, helped by the group’s diversification across several sub-industries including Sustainable Building Solutions, Water Management Solutions and Climate Management Solutions spread across 17 subsidiary companies. Genuit reported group revenues for its first ten months of GBP504.2m, down 4.8% from 2022 on a fall in volumes of 11%. Management said that it had tried to mitigate the fall in volumes by launching new products and developing new markets overseas.
Genuit is a story of acquisition
Originally founded as Polypipe by plumber, Kevin Mc Donald in 1980, Genuit grew through the acquisition of European pipe fabrication businesses in the mid- to late-1990s until it itself was acquired by FTSE100-listed engineering company IMI (Imperial Metal Industries) LON:IMI for GBP337m in 1999.
Six years later IMI sold Polypipe to New York based private equity firm, Castle Harlan. Polypipe exited Castle Harlan through MBO backed by Bank of Scotland and soon after bought ventilation manufacturer Silavent, after previously buying a PVC piping business in Kent. In April 2014 Polypipe was listed on the stock exchange. The company changed its name to Genuit in 2021.
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The company made GBP8m of efficiency savings this year and is aiming at cutting another GBP7m off its costs and it hopes that with these savings and a mild return of volumes the company that it will deliver an operating profit ahead of market expectations of around GBP89.7m.
Driving operational efficiencies
Joe Vorih, Genuit’s CEO said last month: “We have made good progress over the last four months, with demand in our drainage, storm water and ventilation markets holding up well, supported by structural and sustainability growth drivers. Our continued focus on simplifying the business and driving operating efficiencies means that we are well positioned to navigate the current uncertain environment and benefit from incremental margin improvement when volumes return to more normal levels.”
Genuit’s shares have ranged between 244p and 350p over the last 52-weeks but their chart for the year looks like a see-saw ride. Opening 28th November at 322p the shares have returned 2.7% over one year and 9.5% in the year to date. The South Yorkshire company has a market capitalisation of GBP812.3m.
The volatility could imply that Genuit’s share price exhibits relatively high beta, indicating that it tends to move more aggressively than the overall market. While this can cause volatility, it also amplifies potential gains during market uptrends.
Genuit shares look relatively cheap
As with many companies associated with the building trade, their performance has been shackled to the housing market and closely tracks the health of the economy. However, it rains in recessions as well as in a bull market, and the necessity of their products are a strength that makes the company compelling. That said Genuit is not the only plastic piping company in the world, and it operates in a highly price sensitive market with thin margins. The fragility of its markets was exposed earlier this year when the government railed back on the northern leg of its HS2 Rail Project, to which Genuit had exposure.
As we previously reported with Tyman, the market will rebound and housing is top of the list of things to do for the next UK government, as is fix the creaky and leaky water infrastructure. While it is still relatively cheap it might be worth topping up on Genuit shares.
