Momentum maintained

Norcros 7 April 2021 Update
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Norcros

Momentum maintained

Trading update

Construction & materials

7 April 2021

Price

268p

Market cap

£216m

ZAR20.9/£

Net debt (£m) at 7 February 2021

5.7

Shares in issue

80.8m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.5

32.8

113.6

Rel (local)

12.6

27.4

73.2

52-week high/low

268.0p

120.0p

Business description

Norcros is a leading supplier of showers, enclosures and trays, tiles, taps and related fittings and accessories for bathrooms, kitchens, washrooms and other commercial environments. It has operations in the UK and South Africa, with some export activity from both countries.

Next event

FY21 year-end update

15 April

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Following the latest trading update, we have increased our earnings estimates again. Trading momentum is expected to continue beyond the year end and we now expect dividends to normalise more quickly. Although there are still some market issues to contend with (most obviously easing COVID-19 restrictions and a tight freight industry), recent updates suggest the company is meeting the challenges well.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/19

331.0

30.9

29.6

8.4

9.0

3.1

03/20

342.0

27.1

26.1

3.1

10.3

1.2

03/21e

324.7

25.9

25.0

4.0

10.7

1.5

03/22e

335.8

29.4

28.2

7.8

9.5

2.9

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptionals, pension net finance costs and change in fair value of derivatives.

Powering through to year end

Norcros has updated its guidance for the second time in the final month of its trading year. Management is guiding to an uplift in expected group EBIT to ‘not less than £31m’ (previously £28m) and an ungeared balance sheet (ie no core net debt, pre IFRS 16 finance), which is c £8m better than we were anticipating. In context, FY20 EBIT was £32.3m; although this outturn was also COVID-19 affected (noted as a c £4m year-end hit) to get within touching distance in FY21 is a very creditable result, in our view. We understand that trading in recent weeks has seen a continuation of trends into the early part of February rather than a change in trajectory and this update reflects management’s natural caution at that time, including supply chain challenges, which have been successfully navigated so far. It should also be noted that FY21 performance is all organic.

Estimates raised again

We have adjusted our FY21 model in line with guidance (including a raised revenue run rate and cash inflow). As things stand, the momentum and upward pressure on FY21 estimates should follow through into subsequent years; our PBT estimate for the closing year is now c 15% higher, with increases in the following two years of around 10%. We have assumed a faster normalisation of dividend payments. Over and above these changes, the balance sheet position does provide plenty of headroom for the company to make acquisitions again subject to appropriate opportunities arising. A fuller year-end update is scheduled for 15 April.

Valuation: FY22 P/E below 10x

The latest trading update should serve to consolidate share price gains made after the one made at the beginning of March, which partly retraced in the last week. The ytd increase of c 34% is well ahead of the c 3% achieved by the FTSE All Share Index over the same period. Following our earnings upgrades, Nocros is now trading on a P/E and EV/EBITDA (adjusted for pensions cash) of 9.5x and 6.0x respectively for FY22.

Exhibit 1: Financial summary

£'ms

2015

2016

2017

2018

2019

2020

2021e

2022e

2023e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

222.1

235.9

271.2

300.1

331.0

342.0

324.7

335.8

344.7

Cost of Sales

 

 

N/A

N/A

(171.7)

(190.4)

(206.8)

(217.5)

N/A

N/A

N/A

Gross Profit

 

 

N/A

N/A

99.5

109.7

124.2

124.5

N/A

N/A

N/A

EBITDA IFRS16

 

 

24.3

28.0

31.6

34.7

42.2

38.8

36.9

39.9

41.7

Op Profit (before SBP)

 

 

18.3

22.5

25.2

28.3

35.6

32.2

31.6

34.4

35.9

Net Interest

 

 

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(1.6)

(1.7)

(1.0)

(0.9)

Other financial - norm

 

 

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.5)

(4.0)

(4.0)

(4.0)

Other financial

 

 

2.1

(0.2)

(4.2)

(4.5)

2.3

0.9

(2.3)

(1.0)

(1.0)

Intangible Amortisation

 

 

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(3.7)

(4.2)

(4.2)

(4.2)

Exceptionals

 

 

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(9.3)

(3.0)

0.0

0.0

Profit Before Tax (norm)

 

 

14.0

18.5

20.7

24.4

30.9

27.1

25.9

29.4

31.0

Profit Before Tax (company norm)

 

 

15.8

20.4

22.9

26.3

32.6

28.8

27.6

31.1

32.7

Profit Before Tax (statutory)

 

 

11.0

15.4

11.5

13.5

25.4

15.0

16.4

24.2

25.8

Tax

 

 

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(4.1)

(4.5)

(5.8)

(6.1)

Other

 

 

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

 

 

11.1

16.1

17.7

20.8

24.9

23.0

21.5

23.6

24.9

Profit After Tax (statutory)

 

 

8.1

13.0

8.5

9.9

19.4

10.9

12.0

18.4

19.7

 

 

 

 

 

 

 

 

 

 

 

 

Avge Number of Shares O/standing (m)

 

59.2

60.6

61.1

68.0

80.2

80.3

80.7

80.8

80.8

Avge Number of Shares O/standing FD (m)

 

61.5

62.2

63.1

69.8

81.1

81.0

81.0

81.1

81.1

EPS FD - norm (p)

 

 

18.0

24.7

24.4

26.8

29.6

26.1

25.0

28.2

29.8

EPS FD - co norm (p)

 

 

21.1

27.7

27.8

29.5

31.7

28.2

27.1

30.3

31.9

EPS - statutory (p)

 

 

13.2

20.8

13.4

14.1

23.9

13.5

14.8

22.7

24.3

Dividend per share (p)

 

 

5.6

6.6

7.2

7.8

8.4

3.1

4.0

7.8

8.4

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

36.7

36.5

37.5

36.4

N/A

N/A

N/A

EBITDA Margin (%)

 

 

10.9

11.9

11.7

11.6

12.8

11.3

11.4

11.9

12.1

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

 

8.2

9.5

9.3

9.4

10.8

9.4

9.7

10.2

10.4

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

78.3

93.4

98.8

147.9

138.0

150.8

148.9

147.7

145.2

Intangible Assets

 

 

26.9

44.7

44.8

98.9

94.9

96.5

93.0

89.8

85.6

Tangible Assets

 

 

37.6

38.2

43.0

45.0

42.3

49.6

51.2

53.2

54.9

Other Fixed Assets

 

 

13.8

10.5

11.0

4.0

0.8

4.7

4.7

4.7

4.7

Current Assets

 

 

100.4

119.4

165.3

165.1

169.5

188.7

166.5

175.4

191.3

Stocks

 

 

52.2

60.1

70.3

74.9

79.5

78.9

71.9

76.4

78.4

Debtors

 

 

42.6

53.4

57.5

64.4

62.8

62.5

67.1

69.0

70.6

Cash

 

 

5.6

5.9

37.5

25.8

27.2

47.3

27.5

30.0

42.3

Current Liabilities

 

 

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(79.2)

(95.8)

(93.3)

(95.8)

Creditors

 

 

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(79.1)

(95.8)

(93.3)

(95.8)

Short term borrowings

 

 

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

(0.1)

0.0

0.0

0.0

Long Term Liabilities

 

 

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(155.9)

(99.6)

(97.2)

(94.8)

Long term borrowings

 

 

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(83.6)

(27.7)

(27.7)

(27.7)

Other long term liabilities

 

 

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(72.3)

(71.9)

(69.5)

(67.1)

Net Assets

 

 

51.3

47.6

56.6

104.6

125.7

104.4

119.9

132.5

145.9

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

16.2

18.5

25.5

23.5

35.3

34.8

51.9

32.4

39.6

Net Interest

 

 

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(3.5)

(3.5)

(2.8)

(2.7)

Tax

 

 

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(5.3)

(3.0)

(8.1)

(5.9)

Capex

 

 

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(4.8)

(5.0)

(7.5)

(7.5)

Acquisitions/disposals

 

 

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.2)

0.0

(1.0)

0.0

Financing

 

 

0.2

0.1

0.0

30.1

(0.9)

(0.8)

(0.8)

(0.8)

(0.8)

Dividends

 

 

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

0.0

(5.7)

(6.4)

Net Cash Flow

 

 

13.4

(17.1)

7.9

(24.2)

14.0

4.2

39.6

6.5

16.3

Opening net debt/(cash)

 

 

27.4

14.2

32.5

23.2

47.1

35.0

36.4

0.2

(2.3)

IFRS16 Finance leases

 

 

0.0

0.0

0.0

0.0

0.0

(3.8)

(4.0)

(4.0)

(4.0)

Other

 

 

(0.2)

(1.2)

1.4

0.3

(1.9)

(1.8)

0.6

0.0

0.0

Closing net debt/(cash)

 

 

14.2

32.5

23.2

47.1

35.0

36.4

0.2

(2.3)

(14.6)

IFRS16 lease liabilities

 

 

 

 

 

 

 

(25.1)

(26.6)

(26.6)

(26.6)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. 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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 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 Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. 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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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

1185 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

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