Daily ShareChat: Methven

The collapse of shower and tapware manufacturer Methven's largest customer in Britain will cut its net profit for the year ended March by about $1.5 million and reduce future British revenues by about 16% a year, says Selwyn Blinkhorne, an analyst at Craigs Investment Partners.

He has cut his forecast net profit for the year from $6.8 million to $5.4 million.

Administrators were appointed to Focus DIY, a chain of 178 DIY stores, on May 5. Methven's sales to Focus accounted for about 5% of total group sales.

Given expected very modest economic growth in New Zealand before Christchurch reconstruction starts and subdued housing construction data in Australia and Britain, Blinkhorne says is is forecasting only 1.6% revenue growth in the year ending March 2012 but 53% net profit growth, mainly reflecting the avoidance of bad debts and the lower New Zealand corporate tax rate.

Blinkhorne says Methven has in excess of 50% of the New Zealand market and, since entering Australia nine years ago, has gained 30% of its showerware market and is developing its tapware sales and lifting margins as volumes increase.

"Methven is seeking to replicate its Australian success in the UK but has faced headwinds from the GFC, an acquired low-margin product range and the loss of two major customers, combined with an ongoing depressed local residential construction market."

Recommendation: Hold.

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