DLX upcoming result - what to expect, page-8

"...though I have not been following the trend in housing construction to be able to access if buildings are more paint intensive or not, it would be interesting to see over the next few years if in fact the Paints revenue growth rate increases."

@Captgogo

Don't get me wrong; this dynamic - if it materialises - won't not a near-term phenomenon; instead it will be a slow, but supportive, driver of demand for paint.

I am also interested in what you or others think about the performance of Non Paints business since the acquisition of Alesco and the possibility of still being a drag on the overall growth of the business.

The Consumer and Construction Products (C&CP) business, while certainly not as pre-eminent as DLX's paint business, is better-than-average, with some valuable brands (Selleys and Parchem). I think that - even if the residential construction cycle rolls over, C&CP will continue to grow in coming years, supported by the significant infrastructure spending that is underway (although I expect there will be a bit of a lag in terms of demand from infrastructure development for C&CP products, and the next 12 months is likely to see some softness).

The Cabinet and Architectural Hardware (C&AH) business is also not that bad a business, but I think it will prove to be far more cyclical than CC&P. I suspect that, once the current housing construction boom ends (which it looks like it is doing), C&AH will struggle to maintain current levels of profitability, let alone grow, in coming years.

The Garage Doors business was a lemon when they acquired it, it is a lemon today and it will be a lemon in the future. But the market knows this, so if it continues to go nowhere - or even if it goes backwards - it will come as no surprise.


"So though I like the DLX business and it is a quality business does the current market valuation support a growth that might only be 3% p.a."

I think that 3%pa growth understates the business model somewhat; I see it more as a 6%pa to 8%pa growth business, driven by:

- 1% or 2%pa volume growth
- 3%pa price increase,

for Revenue growth of around 4%pa or 5%pa

Combined with the operating leverage in the P&L, this yields Profit growth of 6%pa to 8%pa.

But yes, I agree that DLX's valuation looks full or, at best, reasonable.

But I guess part of the premium-to-market valuation multiples reflect a premium-quality business.

(But then again, generally speaking, I think the overall market looks fully valued, too.)