TRAILBLAZERS Operating margin
This looks healthy: only three out of 51 merchants failed to record an operating profit in the latest financial period. Average operating margin across all 55 of 4.5%. Can’t be much wrong with the trade, can there? Well, no… except that a year earlier in 2018, the average was 4.8%, and in both 2017 and 2016 it was 5.1%. These aren’t huge swings, and they aren’t likely to keep many finance directors awake at night – but it seems clear that the pressure on gross margins is hurting margins at operating level as well. Something to keep a close eye on.
Stockturn
As always, this table defies explanation. Yes, there are differences between heavyside and lightside merchants. Yes, there are differences in what different companies consider to be an appropriate level of stock to hold at year end. And yes, there may be differences in year-end stock levels depending on what point in the year different companies close their books. But even so, it would interesting to understand the detail differences between Builder Depot (good growth, good margins, stockturn 14.8 times) and Rembrand Timber (good growth, good margins, stockturn 3.2 times).
Stockturn growth
On the face of it, this isn’t a very upbeat table: only 16 out of 51 companies improved their stockturn in the latest financial period, and 31 saw their stockturn decline. But it’s all about context, and the context here is that sales were continuing to grow – quite dramatically in some cases. And with strong demand and strong revenues, it’s entirely natural that merchants allowed stock levels to drift upward. Okay, the stock level may have risen at a faster rate than sales – but better to have the stock and make the sale than see the business go elsewhere. The challenge will come when demand next moves into the downward part of the cycle, and merchants once again have to tailor stocks to falling demand.
Return on capital
Return on capital is the shareholders’ key ratio: it tells them how effectively the company is using their money. And a glance at this table says it all: builders merchants are currently using their shareholders’ money very effectively indeed. How many other market sectors can there be where 40 of the top 51 players are delivering double-digit return on capital, year after year? Let’s just put this into context: back in 2013, the average ROC achieved by the Trail Blazers list was 13.3%. In the subsequent years it dipped to 12.9%, then rose to 15.8%, then rocketed to 26.3%, climbed slightly again to a peak of 27.9%, then dropped to 21.7% before this year’s average of 21.3%. That’s an extraordinary record of consistency. And as we have said in previous editions of Trail Blazers, these are figures worth sharing with your bank manager.
BMJ INDEX
The BMJ Index is intended as an overall measure of a merchant’s competitiveness, and is calculated by multiplying the three ratios which we consider the most important: sales growth, stockturn and
RETURN ON CAPITAL:
CONSIDERABLE AND CONSISTENT 1. JT Atkinson
2. AW Lumb 3. MP Moran 4. HPS
5. MGM Timber 6. Beatsons
7. Grant & Stone 8. Kellaway
9. James Burrell 10. Chandlers 11. LBS
12. Huws Gray 13. J T Dove
14. Rawle Gammon & Baker 15. Builder Depot
16. James Hargreaves 17. Walter Tipper 18. Sydenhams 19. Williams
20. C&W Berry
21. Rembrand Timber 22. Beggs & Partners 23. Joseph Parr 24. John Nicholls 25. Markovitz 26. Lawsons
27. Beesley & Fildes 28. Alsford Timber
29. Howarth Timber Supplies 30. Grafton Merchanting GB 31. Elliott Bros 32. Lords
33. Haldane Shiells 34. Ridgeons 35. Crossling 36. Covers
37. John A Stephens 38. Wolseley UK 39. Frank Key
40. Travis Perkins 41. EH Smith 42. Kent Blaxill 43. Boys & Boden 44 AW Champion
45. Myers Building Supplies 46. Robert Price & Sons 47. Carver
48. Nicholls & Clarke 49. Jewson
50. Parker Building Supplies 51. Bradford & Sons 52. MKM
186.0% 132.7% 105.3% 62.1% 59.4% 54.1% 38.8% 29.9% 27.7% 26.4% 26.4% 24.1% 24.0% 22.1% 21.8% 20.6% 20.0% 19.5% 17.8% 17.4% 17.2% 16.7% 16.1% 15.7% 15.0% 14.6% 14.1% 14.1% 14.1% 14.0% 13.3% 13.1% 12.9% 12.7% 12.6% 12.5% 11.4% 10.9% 10.6% 10.1% 9.3% 8.8% 6.1% 6.0% 5.8% 5.8% 5.3% 1.7% 0.0%
-1.7% -5.2%
-158.4%
operating margin. This means that any company which records a drop in sales or a loss at operating level automatically gets a negative index score – not that there are many such cases this year. AW Lumb earns a ‘n/a’ because corporate changes mean that we’re not confident about the validity of year-to-year ratios, and four other companies get negative index
April 2019 A supplement to builders merchants journal
FINANCIAL TABLES
BMJ INDEX: JT ATKINSON WAY IN FRONT
1. JT Atkinson 2. Huws Gray 3. C&W Berry 4. Lords
5. Beggs & Partners 6. Beatsons 7. Kellaway 8. Chandlers 9. LBS
10. James Hargreaves 11. Haldane Shiells
12. Rawle Gammon & Baker 13. J T Dove
14. MGM Timber 15. Joseph Parr 16. HPS
17. Beesley & Fildes 18. Builder Depot 19. Crossling 20. Williams
21. Walter Tipper 22. Markovitz 23. Sydenhams 24. Lawsons
25. John Nicholls 26. James Burrell 27. EH Smith
28. Robert Price & Sons 29. Ridgeons 30. Covers
31. Alsford Timber 32. Elliott Bros
33. Rembrand Timber 34. Boys & Boden
35. Parker Building Supplies 36. Travis Perkins
37. Howarth Timber Supplies 38. Kent Blaxill 39. Grant & Stone 40. John A Stephens 41. Carver
42. Frank Key
43. Myers Building Supplies 44. Jewson
45. Grafton Merchanting GB 46. Wolseley UK 47. AW Champion
48. Nicholls & Clarke 49. Bradford & Sons 50. MP Moran 51. MKM
52. AW Lumb
1,815 1,173 1,168 854 834 728 673 652 578 572 489 469 461 371 368 350 331 293 285 274 274 249 240 203 183 176 168 163 156 154 153 139 119 110 99 98 94 92 79 62 44 41 28 20 18 14 9
-5 -38
-199 -420 n/a
scores either because sales dipped or they recorded and operating loss. Other than that, this year’s BMJ Index chart is hugely impressive – and none more so than JT Atkinson. 40% year-on-year sales growth, stockturn of 5.6 times and operating margin of 8.1% combine to give Atkinson an index score of 1,815 – far ahead of any of its rivals.
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