March 8, 2019

Irish Grafton - Not sexy, but safe due to renovation business



Speculative bubbles: How do we protect ourselves when they burst? Today it's the big tech stocks that are inflated. They are expensive and need really great prospects for the future to justify the price. In a recession they are the very first to fall, because the dreams of the future turn out to be just such.

The sexy tech companies are very tempting, but just as risky. Is there perhaps a more modest, but safer alternative to investing? Yes! For example, companies in the retail and service sectors. Because even in a recession we have to live somewhere and eat something. Of course, the share prices of such companies will also fall in a recession, but certainly not as sharply as those of the "hot" tech companies.

So I went looking for such a modest company and I found it in Ireland: It's called Grafton, has very good Obermatt ranks and is therefore, not without reason, on our British top ten list.

Founded in 1909, the Grafton Group plc is a distributor of building materials for commercial customers who mainly carry out repair, maintenance and improvement projects for residential buildings. In other words, a construction company that is not dependent on the construction of new buildings. This is not uninteresting for us. In a recession, money becomes scarce and people shift the focus from new construction to the repair of existing buildings.

In addition, Grafton's debt is low. This can easily be seen from the high Obermatt Safety Rank of 80. They are, therefore, pursuing a conservative financing strategy. You may already know this from previous contributions: The more debt a company has, the more the share price collapses in a recession. There is a simple reason for this: a company's assets fall, but its debts remain the same. This hurts and damages the value of the company.

The next step was to take a closer look at the company: As expected, the management team looks traditional. That may seem a bit boring, but that's exactly what I want during a downturn. Boring is safer! At the same time, Grafton has a decentralized organizational structure. That in turn is modern and speaks for the stock.

Grafton is also ambitious: their strategy is international expansion. Every year they acquired and successfully integrated another company. And the Irish / British management team comprises executives from continental Europe and the USA. This shows experience. But that's not all: they received a buy recommendation from Berenberg Bank. A company whose research I greatly appreciate.

For me, these are enough reasons to buy Grafton. My decision has been made. I wish you a lot of success in your own decision.



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