In-line year-end update

Epwin Group 6 February 2019 Update
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Epwin Group

In-line year-end update

FY18 year-end update

Construction & materials

6 February 2019

Price

75.1p

Market cap

£107m

Net debt (£m) at end June 2018

28.6

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.4

(6.7)

0.9

Rel (local)

(1.8)

(7.4)

3.4

52-week high/low

90.0p

71.0p

Business description

Epwin Group supplies functional low-maintenance exterior building products (including windows, doors, roofline and rainwater goods) into a number of UK market segments and is a modest exporter. It has a vertically integrated model in windows and doors, and a leading market position in roofline products.

Next events

FY18 results

10 April 2019

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

Consistent messaging from the Epwin management team continued with a year-end update that confirmed that FY18 trading had been in line with market expectations. The theme of self-help given market headwinds is ongoing with tangible evidence of actions taken and planned. Market backdrop uncertainty is reflected in Epwin’s rating multiples. A dividend yield approaching 7% (c 1.9x covered) should be of interest to investors.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16**

293.2

24.3

14.7

6.6

5.1

8.8

12/17

298.3

20.5

12.4

6.7

6.1

8.9

12/18e

292.2

17.0

9.7

5.3

7.7

7.0

12/19e

295.8

17.9

10.2

5.5

7.3

7.3

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals. **FY16 and FY17 EPS benefited in part from recovered tax losses.

H2 progress, net debt below 1x EBITDA

FY18 ended in line with a narrow range of market expectations, which confirms a material improvement in H2 profitability was achieved versus H1. This is partly a normal seasonal effect but also shows some year-on-year progress, demonstrating some recovery from previously noted customer ownership changes. Operational improvements – including exits from two sites (Cardiff and Macclesfield) – and a contribution from Amicus (the 15-branch building products distribution business acquired in March) would have contributed to this outturn, which was achieved despite input cost pressures (especially PVC). Management commented that year-end net debt was less than 1x EBITDA in the year and our c £25m expectation (vs EBITDA of c £27m) is consistent with this and suggests good cash flow control.

More self-help actions in uncertain markets

Reference to macroeconomic and Brexit uncertainty is now commonplace in trading updates. Epwin has repeated this business caveat and expects no RMI rebound in FY19. The post year-end disposal of glass sealed unit manufacturing operations (likely to give rise to an exceptional charge in discontinuing this business) and proposed new warehouse facility at Telford (completion likely by the end of FY19) are further examples of internal actions being taken to enhance business resilience and core growth prospects in challenging markets. These features aside, volume growth, new product sales – including aluminium window systems - and the extent to which polymer price changes need and are able to be passed through to customers will remain the primary drivers of profitability in FY19.

Valuation: Expecting earnings progress from FY19

Epwin’s share price currently sits in the lower half of its 12-month 71–90p trading range, being modestly above December levels. Investor sentiment towards cyclical stocks weakened noticeably in Q418 and the shadow of Brexit is creating uncertainty over future economic growth rates. On our estimates, Epwin is now trading on a trailing year P/E of 7.7x, EV/EBITDA of 4.9x and a dividend yield of almost 7% (covered c 1.9x). We expect FY18 to be an earnings low point with gradual growth to resume from FY19.

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Restated

 

 

 

 

 

 

 

Revenue

 

 

294.4

255.3

259.5

256.0

293.2

298.3

292.2

295.8

300.0

Cost of Sales

 

 

(209.9)

(185.8)

(186.7)

(178.6)

(200.6)

(207.5)

(206.0)

(206.5)

(209.4)

Gross Profit

 

 

84.5

69.5

72.8

77.4

92.6

90.8

86.2

89.3

90.6

EBITDA

 

 

21.8

21.4

24.5

25.6

33.3

30.3

27.2

28.2

28.9

Operating Profit (before GW and except.)

15.4

15.6

19.5

20.1

25.6

22.3

18.9

19.7

20.2

Intangible Amortisation

 

 

(1.7)

(1.7)

(1.7)

(0.0)

(1.1)

(1.1)

(1.2)

(1.2)

(1.2)

Exceptionals

 

 

(4.3)

(5.1)

2.3

(0.6)

(0.2)

(7.4)

(1.5)

0.0

0.0

Other

 

 

0.0

0.0

(0.8)

(0.4)

(0.3)

(0.6)

(0.6)

(0.6)

(0.6)

Operating Profit

 

 

9.4

8.8

19.3

19.1

24.0

13.2

15.6

17.9

18.4

Net Interest

 

 

(1.9)

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.3)

(1.2)

(1.0)

Profit Before Tax (norm)

 

 

13.5

14.6

18.0

19.2

24.3

20.5

17.0

17.9

18.6

Profit Before Tax (FRS 3)

 

 

7.5

7.9

18.6

18.6

23.0

12.0

14.3

16.7

17.4

Tax

 

 

(2.2)

(1.3)

(3.5)

(3.3)

(3.4)

(1.9)

(3.1)

(3.2)

(3.3)

Profit After Tax (norm)

 

 

10.4

12.4

14.4

15.9

20.9

17.6

13.9

14.6

15.2

Profit After Tax (FRS 3)

 

 

4.5

5.1

15.1

15.3

19.6

10.1

11.2

13.4

14.0

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding (m)

 

122.3

122.3

128.0

135.2

141.5

142.6

142.9

142.9

142.9

EPS - normalised (p)

 

 

8.5

10.1

11.2

11.8

14.8

12.4

9.8

10.2

10.6

EPS - normalised (p) FD

 

 

 

 

11.2

11.7

14.7

12.4

9.7

10.2

10.6

EPS - FRS 3 (p)

 

 

3.7

4.2

11.8

11.3

13.8

7.1

7.9

9.4

9.8

Dividend per share (p)

 

 

0.0

0.0

4.2

6.4

6.6

6.7

5.3

5.5

5.7

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.7

27.2

28.1

30.2

31.6

30.4

29.5

30.2

30.2

EBITDA Margin (%)

 

 

7.4

8.4

9.4

10.0

11.3

10.2

9.3

9.5

9.6

Operating Margin (before GW and except.) (%)

5.2

6.1

7.5

7.9

8.7

7.5

6.5

6.6

6.7

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

56.9

54.7

53.8

93.5

108.5

106.2

111.7

111.0

110.0

Intangible Assets

 

 

27.9

26.4

24.7

59.7

70.2

69.6

73.7

72.5

71.3

Tangible Assets

 

 

26.1

25.1

26.2

33.1

37.9

36.0

37.5

38.0

38.2

Other

 

 

2.8

3.2

2.9

0.7

0.4

0.6

0.5

0.5

0.5

Current Assets

 

 

59.9

62.1

62.3

87.2

82.6

82.2

82.7

83.3

84.2

Stocks

 

 

20.9

21.7

22.4

23.6

28.2

29.6

31.4

31.5

31.9

Debtors

 

 

37.4

40.1

37.6

41.5

41.4

45.3

45.5

46.0

46.5

Cash

 

 

1.6

0.3

2.3

22.1

13.0

7.3

5.8

5.8

5.8

Current Liabilities

 

 

(53.2)

(54.5)

(49.0)

(68.8)

(79.2)

(79.2)

(91.0)

(90.0)

(84.8)

Creditors

 

 

(49.1)

(51.5)

(48.6)

(53.2)

(62.9)

(58.2)

(65.9)

(65.5)

(66.9)

Short term borrowings

 

 

(4.1)

(3.0)

(0.4)

(15.6)

(16.3)

(21.0)

(25.0)

(24.5)

(17.9)

Long Term Liabilities

 

 

(32.0)

(25.7)

(4.3)

(31.8)

(21.0)

(15.5)

(9.1)

(4.1)

(3.2)

Long term borrowings

 

 

(20.6)

(16.0)

(0.8)

(20.9)

(17.3)

(11.4)

(5.9)

(0.9)

0.0

Other long term liabilities

 

 

(11.4)

(9.7)

(3.5)

(10.9)

(3.7)

(4.1)

(3.2)

(3.2)

(3.2)

Net Assets

 

 

31.5

36.6

62.8

80.1

90.9

93.7

94.3

100.1

106.3

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

15.7

12.1

19.8

23.8

30.8

19.9

22.4

26.7

28.4

Net Interest

 

 

(1.4)

(0.9)

(0.7)

(0.5)

(1.0)

(1.0)

(1.2)

(1.2)

(1.0)

Tax

 

 

(1.6)

(0.9)

(1.7)

(2.3)

(3.8)

(2.7)

(2.6)

(2.7)

(2.8)

Capex

 

 

(4.6)

(4.9)

(5.6)

(9.0)

(12.7)

(7.1)

(9.3)

(9.3)

(9.3)

Acquisitions/disposals

 

 

(28.2)

(0.2)

0.0

(20.9)

(10.2)

(3.9)

0.0

(0.3)

0.0

Financing

 

 

0.0

0.0

10.0

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(1.9)

(6.7)

(9.1)

(9.5)

(9.3)

(7.6)

(7.9)

Net Cash Flow

 

 

(20.2)

5.2

19.9

(15.6)

(6.1)

(4.3)

0.1

5.6

7.4

Opening net debt/(cash)

 

 

0.5

23.2

18.7

(1.1)

14.4

20.6

25.1

25.1

19.6

HP finance leases initiated

 

 

(2.5)

(0.5)

(0.3)

0.4

1.9

(1.4)

(0.6)

0.0

0.0

Other

 

 

0.0

(0.1)

0.2

(0.3)

(2.1)

1.2

0.5

(0.0)

(0.0)

Closing net debt/(cash)

 

 

23.2

18.6

(1.1)

14.4

20.6

25.1

25.1

19.6

12.1

Source: Epwin accounts, Edison Investment Research. Note: FY13 to FY17 EPS benefited in part from recovered tax losses.

General disclaimer and copyright

This report has been commissioned by Epwin Group and prepared and issued by Edison, in consideration of a fee payable by Epwin Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Epwin Group and prepared and issued by Edison, in consideration of a fee payable by Epwin Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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