Metro Glass aims to cut debt, invest more after first half result
Metro Performance Glass chief executive Nigel Rigby says the company wants to reduce its gearing but also invest in New Zealand and Australia, where it sees growth in demand
The company yesterday reported a 5% gain in first-half profit to $11.5 million on a 23% lift in revenue to $116.3 million, as it benefited from a strong local construction market and booked a one-time gain from its acquisition of Australian Glass Group (AGG)
"The Australian market looks robust on a single family home basis, so we've got a good backdrop," Mr Rigby says.
"For the first six months it'll be about integrating and stabilising the business, and the key markets – South Australia, Victoria, Tasmania, New South Wales – are early in the double glazed penetration curve."
Victoria will be a key market in Australia while the upper North Island is going to see growth in New Zealand, with Auckland residential housing consents expected to stay strong for an extended period, Mr Rigby says.
Metro Glass bought AGG for $A43.1 million in August, and financing for the acquisition increased gearing to 38.5% in the first half from 26% a year earlier.
The board declared a 3.6c interim dividend, payable on January 23 with a January 9 record date, which chairman John Goulter says reflects both the company's opportunities and its increased gearing level.
Mr Rigby says there is "quite a chunk" of development capital the company wants to invest in New Zealand and Australia.
"In the past, the New Zealand and Australian markets have been counter-cyclical to some extent – it doesn't look like it will change anytime soon, but when the cycle starts to turn down, hopefully having an Australian position and a good thriving Australian business will offset New Zealand," Mr Rigby says.
"That's the theory – having said that, Australia hasn't been a happy hunting ground for a lot of New Zealand manufacturers, so we've got to make sure we're doubly vigil. We spent a year looking at AGG so we can make it a success."
Mr Rigby says the company is well-positioned following the recent 7.8 magnitude earthquake near Kaikoura which has damaged buildings in the South Island and Wellington.
"In an earthquake, windows and glass are one of the first things to go, unfortunately if you're a homeowner but fortunately for us. We'll be a direct recipient of repairs or rebuilds," he says.
Metro Glass has been investing in automation at its Auckland manufacturing facility, which Mr Rigby says is vital to compete with low-cost imports, especially as there is no tariff on glass importing.
"The efficiencies have started again but there's a lot of gas left in the tank. We're fortunate to have a strong market," he says. "It's been a little bit difficult over the past half year to get out those efficiencies because the market has been growing so strongly, but over time we'll get those efficiencies out."
The company is one of the biggest glass purchasers in Australasia, meaning it has import costs which are "probably better than most" and the AGG acquisition helps with that critical mass,” Mr Rigby says.
The shares, which listed at $1.70 on the NZX in 2014, last traded at $2.08, and have gained 25% this year. The stock is rated an average 'buy', according to five analyst recommendations compiled by Reuters, with a median target price of $2.20.