Eco Investor June 2016

Core Securities

Double Glazing Boosts Glass Profits

Windows with double glazing or performance glass that insulate against heat and cold are great passive technologies as they have only an upfront cost and don't need ongoing power or costs to keep doing their job, which can be for many decades or longer. They are good for the wallet as well as the environment. So it is encouraging that the ASX has an investment option for energy efficient windows. New Zealand's Metro Performance Glass listed in July 2014 and it's doing well.

Some positives in the New Zealand double glazed window market helped Metro Glass increase net profit for the year to 31 March to NZ$20.5 million. For the previous corresponding eight months since it listed its net profit was NZ$9.5 million. Sales also rose strongly to NZ$188 million from NZ$115 million over the same periods.

Metro said it benefited from the growth in the residential and commercial construction markets, but it was also constrained by industry supply and execution delay issues. Its commercial forward orders grew 70 per cent to NZ$27 million.

The company increased its market share in the residential double glazing market by about 3 per cent, and its revenue from retrofitting double glazing grew by 39 per cent to NZ$14.1 million. There was also a 79 per cent increase in sales of high performance LowE glass.

Chairman Sir John Goulter said the Retrofit double glazing business continued its rapid development, and the company is pushing the Retrofit business as it offers strong prospects for long-term, counter-cyclical growth and can underpin longer-term earnings. Investments included online sales tools to help with quoting retrofitted doubled glazed units, and a significant advertising campaign.

The emphasis on retrofitting double glazed windows is also positive for the company's environmental credentials.

The company is paying a New Zealand fully-imputed final dividend of NZ 4 cents per share, making the full year dividend NZ 7.6 cents per share. Earnings per share were NZ 11.1 cents, so the payout ratio is 68 per cent. For non-New Zealanders, the supplementary dividend is NZ 0.7059 cents per share.

The return on equity was good at 13.7 per cent, and the company also enjoys low gearing at 22.7 per cent.

Looking forward, the company believes it is well positioned to benefit from the significant market opportunities it sees emerging. Chief executive Nigel Rigby said the company is benefiting from favourable market conditions. New Zealand residential consents grew 11 per cent in the year and reached 27,800. Commercial construction is lumpy but there is a significant pipeline of projects.

"Construction activity and building consents have recovered to levels last seen prior to the global financial crisis as the sector benefits from record net migration, low interest rates and a historical residential under-build. The company sees no sign of this momentum slowing in the immediate future," he said.

New Zealand already has one of the world's highest levels of renewable energy generation. But there is a niche and many years of work in supplying new and retrofitted windows with double glazing and performance glass. These are an important part of Metro Glass' glass and window products. As a manufacturer, Metro Glass' business is based on customized products, short lead times, and a broad product range. (ASX: MPP)

Above: New Zealand long term consents for new residential buildings.
Below: A Metro Performance Glass factory floor.

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