Resuming operations

Epwin Group 1 June 2020 Update
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Epwin Group

Resuming operations

COVID-19 update

Construction & materials

1 June 2020

Price

72.5p

Market cap

£104m

Core net debt (£m) at end December 2019

16.4

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.4)

(20.8)

(12.7)

Rel (local)

(9.2)

(13.5)

2.2

52-week high/low

113.2p

58.4p

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

AGM

16 June 2020

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

Following a temporary shutdown of facilities at the end of March, Epwin has been reversing this process which is expected to complete in the next week with all main sites operational by then. The next phase will depend on the rate at which demand returns in the company’s product space. Previously announced actions have contributed to a stable funding picture with core net debt at the end of April – the first full month of the coronavirus impact – unchanged from the end of March. Our estimates remain suspended for now.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

281.1

16.5

9.8

4.9

7.4

6.8

12/19

282.1

15.0

8.5

1.8

8.5

2.5

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals, with estimates on an IFRS 16 basis. FY19 dividend represents the H1 payment only; no final dividend is expected.

Progressive restarting of operations in May

Post Epwin’s FY19 results and last trading update, the UK government began to ease lockdown conditions in the second week in May and the company, along with its sector peers, has gradually resumed operations. Having re-established product availability, it then restarted extrusion lines and began re-opening distribution depots. This phase – covering all remaining sites – is expected to conclude in the next week. Accordingly, Epwin is set to further reduce the number of furloughed employees (which had peaked at c 90%). The business typically runs with a relatively short order horizon and so the next step up in activity levels will be informed by new business, customer intentions and perceived ongoing order levels.

Robust financial position

Recent trading is already faring better than the ‘worst case’ version (ie zero sales for six months). Encouragingly, end April net debt remained at end March levels (c £30m) so Epwin retained c £45m headroom under existing facilities and continues to look financially robust as sales recover. The receipt of UK government furlough monies (starting in April), a good receivables performance and perhaps some inventory reduction will have contributed to this outturn. We acknowledge that a stronger ramp up phase is likely to require some cash absorption – especially working capital build – but otherwise the aim will be to match resources to prevailing business levels with an eye to expected order intake.

Near-term challenges, long-term drivers

The key long-term macro drivers for Epwin’s revenue development (ie UK population growth and an ageing housing stock) remain very much intact in our view. The currently subdued housing transactions and rising unemployment rate are a near-term consequence of the coronavirus pandemic and will impact consumer sentiment. An optimistic view might be that lockdown has lifted home improvements further up the agenda; the rate at which consumer sentiment recovers will be an important marker of improving demand we believe.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2017

2018

2019

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Restated

 

 

Revenue

 

 

255.3

259.5

256.0

293.2

298.3

292.8

281.1

282.1

Cost of Sales

 

 

(185.8)

(186.7)

(178.6)

(200.6)

(207.5)

(201.5)

(196.4)

(193.3)

Gross Profit

 

 

69.5

72.8

77.4

92.6

90.8

91.3

84.8

88.8

EBITDA (pre IFRS 16)

 

 

21.4

24.5

25.6

33.3

30.3

32.1

26.7

26.4

Operating Profit (pre IFRS 16 norm)

 

15.6

19.5

20.1

25.6

22.3

24.2

18.7

19.1

Operating Profit (IFRS 16 norm)

 

 

 

 

 

 

 

 

 

21.2

Intangible Amortisation

 

 

(1.7)

(1.7)

(0.0)

(1.1)

(1.1)

(1.1)

(1.2)

(0.3)

Exceptionals

 

 

(5.1)

2.3

(0.6)

(0.2)

(7.4)

(7.4)

(2.0)

(2.3)

Other

 

 

0.0

(0.8)

(0.4)

(0.3)

(0.6)

(0.6)

(0.7)

(1.4)

Operating Profit

 

 

8.8

19.3

19.1

24.0

13.2

15.1

14.8

17.2

Net Interest

 

 

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.2)

(1.5)

(4.8)

Profit Before Tax (IFRS 16 norm)

 

14.6

18.0

19.2

24.3

20.5

22.4

16.5

15.0

Profit Before Tax (statutory)

 

 

7.9

18.6

18.6

23.0

12.0

13.9

13.3

12.4

Tax

 

 

(1.3)

(3.5)

(3.3)

(3.4)

(1.9)

(2.3)

(2.5)

(2.9)

Profit After Tax (norm)

 

 

12.4

14.4

15.9

20.9

17.6

19.1

14.0

12.2

Profit After Tax (statutory)

 

 

5.1

15.1

15.3

19.6

10.1

11.6

10.8

9.6

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

128.0

135.2

141.5

142.6

142.6

142.9

142.9

EPS - normalised (p) – IFRS 16 from 2019 

10.1

11.2

11.8

14.8

12.4

13.4

9.8

8.5

EPS - normalised (p) FD – IFRS 16 from 2019

 

 

11.2

11.7

14.7

12.4

13.4

9.8

8.5

EPS - statutory (p)

 

 

4.2

11.8

11.3

13.8

7.1

7.1

4.1

6.7

Dividend per share (p)

 

 

0.0

4.2

6.4

6.6

6.7

6.7

4.9

1.8

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

27.2

28.1

30.2

31.6

30.4

31.2

30.2

31.5

EBITDA pre IFRS 16 Margin (%)

 

 

8.4

9.4

10.0

11.3

10.2

11.0

9.5

9.4

Operating Margin pre IFRS 16 norm (%)

 

6.1

7.5

7.9

8.7

7.5

8.3

6.7

6.8

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

54.7

53.8

93.5

108.5

106.2

 

111.7

125.6

Intangible Assets

 

 

26.4

24.7

59.7

70.2

69.6

 

73.7

75.7

Tangible Assets

 

 

25.1

26.2

33.1

37.9

36.0

 

37.3

46.1

Other

 

 

3.2

2.9

0.7

0.4

0.6

 

0.7

3.8

Current Assets

 

 

62.1

62.3

87.2

82.6

82.2

 

75.7

91.5

Stocks

 

 

21.7

22.4

23.6

28.2

29.6

 

29.2

30.3

Debtors

 

 

40.1

37.6

41.5

41.4

45.3

 

40.4

44.0

Cash

 

 

0.3

2.3

22.1

13.0

7.3

 

6.1

17.2

Current Liabilities

 

 

(54.5)

(49.0)

(68.8)

(79.2)

(79.2)

 

(69.3)

(77.3)

Creditors

 

 

(51.5)

(48.6)

(53.2)

(62.9)

(58.2)

 

(63.7)

(76.0)

Short term borrowings

 

 

(3.0)

(0.4)

(15.6)

(16.3)

(21.0)

 

(5.6)

(1.3)

Long Term Liabilities

 

 

(25.7)

(4.3)

(31.8)

(21.0)

(15.5)

 

(28.1)

(36.7)

Long term borrowings

 

 

(16.0)

(0.8)

(20.9)

(17.3)

(11.4)

 

(25.3)

(32.3)

Other long term liabilities

 

 

(9.7)

(3.5)

(10.9)

(3.7)

(4.1)

 

(2.8)

(4.4)

Net Assets

 

 

36.6

62.8

80.1

90.9

93.7

 

90.0

103.1

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

12.1

19.8

23.8

30.8

19.9

18.1

25.8

34.1

Net Interest

 

 

(0.9)

(0.7)

(0.5)

(1.0)

(1.0)

(1.0)

(1.3)

(1.6)

Tax

 

 

(0.9)

(1.7)

(2.3)

(3.8)

(2.7)

(2.7)

(2.6)

(2.6)

Capex

 

 

(4.9)

(5.6)

(9.0)

(12.7)

(7.1)

(5.3)

(12.5)

1.5

Acquisitions/disposals

 

 

(0.2)

0.0

(20.9)

(10.2)

(3.9)

(3.9)

0.0

(2.2)

Financing

 

 

0.0

10.0

0.0

0.0

0.0

0.0

(0.0)

(12.3)

Dividends

 

 

0.0

(1.9)

(6.7)

(9.1)

(9.5)

(9.5)

(8.8)

(7.1)

Net Cash Flow

 

 

5.2

19.9

(15.6)

(6.1)

(4.3)

(4.3)

0.6

9.8

Opening net debt/(cash)

 

 

23.2

18.7

(1.1)

14.4

20.6

20.6

25.1

24.8

Finance leases initiated

 

 

(0.5)

(0.3)

0.4

1.9

(1.4)

(1.4)

(1.1)

0.0

Other

 

 

(0.1)

0.2

(0.3)

(2.1)

1.2

1.2

0.8

(1.5)

Closing net debt/(cash)

 

 

18.6

(1.1)

14.4

20.6

25.1

25.1

24.8

16.4

IFRS 16 Leases

 

 

 

 

 

 

 

 

 

71.0

Source: Company accounts, Edison Investment Research


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 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 2020 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

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 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 2020 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

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

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