Epwin Group — FY17 starts in line with expectations

Epwin Group (AIM: EPWN)

Last close As at 18/04/2024

GBP0.86

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GBP123m

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Research: Industrials

Epwin Group — FY17 starts in line with expectations

Trading in the first four months of FY17 has been in line with management expectations and our estimates are unchanged. Market commentary is cautious, but as outlined in our recent note Epwin has a number of internal initiatives underway to further improve the business and mitigate near-term input cost pressures. In our view, longer-term prospects are somewhat better than the current rating is implying.

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Industrials

Epwin Group

FY17 starts in line with expectations

AGM update

Construction & materials

26 May 2017

Price

121.25p

Market cap

£173m

Net debt (£m) at end December 2016

20.6

Shares in issue

142.5m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.6)

5.2

(4.5)

Rel (local)

(8.5)

0.7

(20.1)

52-week high/low

132.0p

94.2p

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

H117 period end

June 2017

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Epwin Group is a research client of Edison Investment Research Limited

Trading in the first four months of FY17 has been in line with management expectations and our estimates are unchanged. Market commentary is cautious, but as outlined in our recent note Epwin has a number of internal initiatives underway to further improve the business and mitigate near-term input cost pressures. In our view, longer-term prospects are somewhat better than the current rating is implying.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15**

256.0

19.2

11.7

6.4

10.4

5.3

12/16**

293.2

24.3

14.7

6.6

8.2

5.4

12/17e

306.3

24.4

14.0

6.7

8.7

5.5

12/18e

311.6

25.4

14.3

7.0

8.5

5.8

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals. **FY15 and FY16 EPS benefited from recovered tax losses.

A steady start to the year

For the UK building materials sector, Q2, Q3 and into Q4 are the busiest periods, but it is encouraging to know that the first four months of Epwin’s trading year have met management expectations. Industry-wide materials input cost rises have been flagged previously and there appears to be no additional caution in this area. In flat RMI markets, Epwin is focusing on operational improvements (eg in fabrication) and marketing initiatives (eg branding and range development of window systems and canopy products plus greater co-ordination across group companies). H117 will benefit from an extra five months of National Plastics trading and we expect Fabrication & Distribution to show a more robust y-o-y performance. We will take a view on the likely shape and quantum of H117 results at the end of the half year.

Variable newsflow, flat volumes anticipated

Recent comments from adjacent companies (ie Eurocell, Safestyle, Tyman and Titon Holdings) have shown some variability reflecting respective sector exposures. From a general industry perspective, new housebuilding demand appears to be robust, while retail has clearly slowed recently. After taking soundings across the door and window supply chain, we believe that the broad expectation is for flat trade volumes and improved pricing in FY17 reflecting a pass through of higher input prices. Our underlying Epwin model is consistent with this, supplemented by the full year effects of National Plastics. As noted above, building products suppliers exhibit a calendar H2 weighting; Q316 contained some softness so we believe that a flat volume expectation is a reasonable expectation for 2017 overall.

Valuation: Overly cautious

Epwin’s share price has eased back from FY17 highs of 128.5p but has still outperformed the FTSE All-Share Index by c 16% ytd. Notwithstanding this, it is currently slightly below year ago levels. Valuation multiples are little changed from our last note, being a P/E of 8.7x and EV/EBITDA of 5.6x for this year with a prospective 5.5% dividend yield. While market caution has been expressed, we feel that this has been overly discounted at current share price levels.

Financial summary

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016

2017e

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Restated

 

 

 

 

 

 

Revenue

 

 

294.4

255.3

259.5

256.0

293.2

306.3

311.6

317.3

Cost of Sales

 

 

(209.9)

(185.8)

(186.7)

(178.6)

(200.6)

(208.3)

(211.9)

(215.8)

Gross Profit

 

 

84.5

69.5

72.8

77.4

92.6

98.0

99.7

101.5

EBITDA

 

 

21.8

21.4

24.5

25.6

33.3

34.1

35.2

36.0

Operating Profit (before GW and except.)

15.4

15.6

19.5

20.1

25.6

25.9

26.7

27.3

Intangible Amortisation

 

 

(1.7)

(1.7)

(1.7)

(0.0)

(1.1)

(1.3)

(1.3)

(1.3)

Exceptionals

 

 

(4.3)

(5.1)

2.3

(0.6)

(0.2)

0.0

0.0

0.0

Other

 

 

0.0

0.0

(0.8)

(0.4)

(0.3)

(0.3)

(0.3)

(0.3)

Operating Profit

 

 

9.4

8.8

19.3

19.1

24.0

24.3

25.1

25.7

Net Interest

 

 

(1.9)

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.0)

(0.6)

Profit Before Tax (norm)

 

 

13.5

14.6

18.0

19.2

24.3

24.4

25.4

26.4

Profit Before Tax (FRS 3)

 

 

7.5

7.9

18.6

18.6

23.0

23.1

24.1

25.1

Tax

 

 

(2.2)

(1.3)

(3.5)

(3.3)

(3.4)

(4.4)

(4.8)

(4.7)

Profit After Tax (norm)

 

 

10.4

12.4

14.4

15.9

20.9

20.0

20.6

21.6

Profit After Tax (FRS 3)

 

 

4.5

5.1

15.1

15.3

19.6

18.7

19.3

20.3

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

122.3

128.0

135.2

141.5

142.4

143.2

143.2

EPS – normalised* (p)

 

 

8.5

10.1

11.2

11.8

14.8

14.1

14.4

15.1

EPS – normalised* (p) FD

 

 

 

 

11.2

11.7

14.7

14.0

14.3

15.0

EPS - FRS 3* (p)

 

 

3.7

4.2

11.8

11.3

13.8

13.1

13.5

14.2

Dividend per share (p)

 

 

0.0

0.0

4.2

6.4

6.6

6.7

7.0

7.4

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.7

27.2

28.1

30.2

31.6

32.0

32.0

32.0

EBITDA Margin (%)

 

 

7.4

8.4

9.4

10.0

11.3

11.1

11.3

11.3

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

5.2

6.1

7.5

7.9

8.7

8.5

8.6

8.6

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

56.9

54.7

53.8

93.5

108.5

112.8

111.5

110.0

Intangible Assets

 

 

27.9

26.4

24.7

59.7

70.2

74.2

72.9

71.6

Tangible Assets

 

 

26.1

25.1

26.2

33.1

37.9

38.2

38.3

38.1

Other

 

 

2.8

3.2

2.9

0.7

0.4

0.4

0.4

0.4

Current Assets

 

 

59.9

62.1

62.3

87.2

82.6

73.1

80.5

83.9

Stocks

 

 

20.9

21.7

22.4

23.6

28.2

29.3

29.8

30.3

Debtors

 

 

37.4

40.1

37.6

41.5

41.4

43.0

43.7

44.4

Cash

 

 

1.6

0.3

2.3

22.1

13.0

0.8

7.1

9.2

Current Liabilities

 

 

(53.2)

(54.5)

(49.0)

(68.8)

(79.2)

(65.8)

(67.4)

(63.9)

Creditors

 

 

(49.1)

(51.5)

(48.6)

(53.2)

(62.9)

(60.8)

(62.4)

(63.9)

Short term borrowings

 

 

(4.1)

(3.0)

(0.4)

(15.6)

(16.3)

(5.0)

(5.0)

0.0

Long Term Liabilities

 

 

(32.0)

(25.7)

(4.3)

(31.8)

(21.0)

(16.0)

(11.0)

(6.0)

Long term borrowings

 

 

(20.6)

(16.0)

(0.8)

(20.9)

(17.3)

(12.3)

(7.3)

(2.3)

Other long term liabilities

 

 

(11.4)

(9.7)

(3.5)

(10.9)

(3.7)

(3.7)

(3.7)

(3.7)

Net Assets

 

 

31.5

36.6

62.8

80.1

90.9

104.1

113.7

124.0

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

15.7

12.1

19.8

23.8

30.8

32.8

34.6

35.4

Net Interest

 

 

(1.4)

(0.9)

(0.7)

(0.5)

(1.0)

(1.2)

(0.9)

(0.6)

Tax

 

 

(1.6)

(0.9)

(1.7)

(2.3)

(3.8)

(3.9)

(4.3)

(4.2)

Capex

 

 

(4.6)

(4.9)

(5.6)

(9.0)

(12.7)

(9.0)

(8.5)

(8.5)

Acquisitions/disposals

 

 

(28.2)

(0.2)

0.0

(20.9)

(10.2)

(5.3)

0.0

0.0

Financing

 

 

0.0

0.0

10.0

0.0

0.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(1.9)

(6.7)

(9.1)

(9.4)

(9.7)

(10.0)

Net Cash Flow

 

 

(20.2)

5.2

19.9

(15.6)

(6.1)

4.1

11.3

12.1

Opening net debt/(cash)

 

 

0.5

23.2

18.7

(1.1)

14.4

20.6

16.5

5.2

HP finance leases initiated

 

 

(2.5)

(0.5)

(0.3)

0.4

1.9

0.0

0.0

0.0

Other

 

 

0.0

(0.1)

0.2

(0.3)

(2.1)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

23.2

18.6

(1.1)

14.4

20.6

16.5

5.2

(6.9)

Source: Epwin Group accounts, Edison Investment Research. Note: *FY13 to FY16 EPS benefited in part from recovered tax losses.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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