Coventry Group shares fell today but is the turnaround finally taking shape?

Industrial distributor Coventry Group (ASX: CYG) has released a first-half trading update that points to improving operational momentum while also flagging potential corporate activity through a newly announced strategic review.

While still early in the turnaround, the update suggests Coventry’s “back to basics” reset is beginning to show some traction.

What did Coventry Group report?

For the first half of FY26, Coventry reported unaudited sales of $188.5 million and EBITDA of $3.2 million, representing an improvement on the prior half (2H FY25).

• Group sales increased 5.1% half on half
• EBITDA rose 33% to $3.2 million
• Trade Distribution sales grew 6.6%
• Fluid Systems sales increased 2.7%

Sales momentum improved during the second quarter, although this was partially offset by lower gross margins, growth-related investment in new branches, and one-off costs associated with relocating the Mackay Fluid Systems branch in Queensland.

Encouragingly, Coventry’s cost-out program (which has already delivered approximately $5.1 million in annualised savings) continues to ramp up, with further reductions in the monthly expense run rate expected in coming periods.

What did management say?

Management struck a cautiously optimistic tone but noted that this performance reflects only a nominal contribution from early-stage operational improvements, with most benefits yet to flow through.

While acknowledging margin pressure in the short term, management expects a meaningful uplift in earnings in the second half, as benefits from sales initiatives, gross margin improvements, and cost reductions progressively take hold.

Balance sheet management was also highlighted, with net debt and working capital tracking broadly to plan, and sufficient liquidity maintained alongside continued bank support.

Alongside the trading update, Coventry announced that the Board has commenced a strategic review of its business portfolio following recent unsolicited third-party approaches regarding individual business units.

The review will assess options, including portfolio simplification, separations, or other strategic initiatives aimed at unlocking shareholder value. External advisers have been appointed, although the Board stressed that no decisions have been made and there is no certainty of a transaction. In light of this process, FY26 earnings guidance has been withdrawn.

Foolish bottom line

Coventry Group is going through a significant transition, and the turnaround remains a work in progress.

Improving sales momentum, meaningful cost reductions, and expectations for stronger second-half earnings provide reasons for cautious optimism, but the withdrawal of guidance provides some uncertainty.

It’s still early days, but between operational improvement and possible portfolio action, Coventry has clearly entered a more interesting phase of its turnaround story.

Coventry Group shares are down 53% over the last 12 months.

The post Coventry Group shares fell today but is the turnaround finally taking shape? appeared first on The Motley Fool Australia.

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Motley Fool contributor Kevin Gandiya has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.