Grafton's move will take it out of a closed period and puts the company in a position to buy back shares, which analysts said would be the first move in shielding the company from predatory interest. Senior executives of the company are understood to have met with Davy Corporate Finance last Tuesday.

Turbulent market conditions have left Grafton shares . . . which have declined 24% this year . . . undervalued, according to NCB construction sector analyst John Sheehan. He said an uncertain industry outlook and ongoing sector consolidation meant the company could draw "predatory interest", estimating that Grafton could achieve 14.40 to 15.60 per share in the event of a takeover bid. The shares were trading between 9.50 and 10 over the past week.

Head of research at Dolmen, Stuart Draper, said there was an above-average possibility of a management buyout. "People will regard them as very attractive at current prices and they are still vulnerable to a takeover bid, " he said. "Grafton has been an acquisition machine and they will see the multiples they have been buying at recently. [Chairman] Michael Chadwick already has a large stake, so they would be off to a flying start. If you look at the balance sheet, you'll see that they are lowly geared and there is plenty of room to put more debt into the company. The first step is the buyback and, if that isn't working, they might look at an MBO, " he said.

Davy analyst Florence McCarthy was more cautious. "They have been very vague about a buyback, but if it goes ahead it would help the share price, " he said.

McCarthy said that an MBO couldn't be ruled out, but thought that a buyback would reduce its likelihood.

Grafton chief operating officer Leo Martin was tightlipped about whether the firm would embark on a buyback, other than to say that taking the company out of the closed period gave it the flexibility to do so. "If we do see value in the market, then we certainly will take advantage of it, " he said. Commenting on speculation that the company could be a takeover target, he said that the company would do anything it could if it felt the company was in danger of being snapped up at a low price. He said he had "absolutely no comment" to make on the likelihood of a management buyout.

Grafton reported on Tuesday that sales were up 13% to 1.61 billion from 1.43 billion in the first half of 2006. Operating profit increased 16% to 124.4m, while pre-tax profit was up 18% to 106.4m.

Adjusted earnings per share rose by 18% to 39.1 cent.

The company managed to counteract the impact of the housing slowdown in Ireland through a strong performance in its UK operations, where revenue came in at 979.4m compared to 628.8m from Ireland. Martin said that roughly half of its Irish merchanting business goes to the housing sector and that has been flat in the first six months.

The other half supplies the commercial, infrastructural and repair and maintenance sectors and improved performance there balanced the decline in housing. He also said its Irish DIY division, which incorporates Woodie's and Atlantic Homecare had a strong six months, boosted by the release of SSIA cash.