Currency in GBP
Last close As at 09/06/2023
GBP1.81
▲ 1.00 (0.56%)
Market capitalisation
GBP162m
Research: Industrials
The acquisition of Grant Westfield (GW) is a typical Norcros deal: profitable, strongly complementary to the existing product offer and has excellent ongoing growth prospects. The cash- and debt-free consideration is £80m and represents 7.9x FY21 EBITDA. We have raised our first full-year (FY24) EPS estimate by c 10% in underlying terms, which is consistent with guidance, and the P/E for the year is now just 5.9x.
Written by
Toby Thorrington
Norcros |
Broadening the UK bathroom product offering |
Grant Westfield acquisition |
Construction & materials |
17 May 2022 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited. |
The acquisition of Grant Westfield (GW) is a typical Norcros deal: profitable, strongly complementary to the existing product offer and has excellent ongoing growth prospects. The cash- and debt-free consideration is £80m and represents 7.9x FY21 EBITDA. We have raised our first full-year (FY24) EPS estimate by c 10% in underlying terms, which is consistent with guidance, and the P/E for the year is now just 5.9x.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/20 |
342.0 |
27.1 |
26.1 |
3.1 |
8.8 |
1.3 |
03/21 |
324.2 |
29.0 |
29.1 |
8.2 |
7.9 |
3.5 |
03/22e |
396.2 |
35.6 |
33.6 |
9.0 |
6.8 |
3.9 |
03/23e |
436.7 |
39.8 |
34.6 |
9.8 |
6.6 |
4.2 |
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.
More of the same but different
Norcros has an excellent M&A track record and the proposed acquisition of GW expands the company’s UK bathroom products portfolio. Its range of laminated panels (c 85% revenue) and flooring (c 15%) are highly complementary to Norcros’s Merlyn (shower enclosures) and Johnson Tiles (wall and floor tiles) and are a natural fit with its other shower and tap product lines. With £42m annual revenues (calendar 2021), GW will be the third or fourth largest of eight companies in the group’s UK portfolio and it is already a very profitable operation with EBITDA margins of more than 20%. Norcros management believes they are sustainable, as is the recent 10% revenue growth rate. There is capacity for a significant volume increase (from the flexible production plant, which is running on a single shift) and channel benefits from being part of a larger group. In addition, nascent export opportunities include the group’s sister South African retail business, Tile Africa.
Estimates raised, pro-forma gearing 1.0x EBITDA
The enterprise consideration for GW is £80m, which Norcros is part funding through a placing that raised c £19m at 230p/share. A year-end trading update indicated Norcros was in a £7m net cash position at the end of March and, on our provisional estimates, the group’s core net debt position (pre IFRS 16) at the end of FY23 is projected to be c £47m (well within the recently announced new £130m RCF); this represents c 0.9x our expected EBITDA in the year (after pensions cash). We have increased our underlying EPS estimates by c 3% for FY23 and c 10% for FY24 following the deal (or c 2% and c 9% respectively after a separate £0.4m increase in the IAS19R admin cost run rate; included in Edison normalised PBT, but excluded from the company’s definition).
Valuation: Rating attraction deepens
Consumer-oriented cyclical stocks in the building materials space have seen significant share price declines year to date on underlying estimates that seem to have been robust, leading to rating compression. This also applies to Norcros, and more so given that GW is an earnings-enhancing deal. As a result, rating multiples have become even more attractive and Norcros is trading on just 5.9x FY24 earnings and EV/EBITDA (adjusted for pensions cash) of 4.3x.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Revenue |
|
|
222.1 |
235.9 |
271.2 |
300.1 |
331.0 |
342.0 |
324.2 |
396.2 |
436.7 |
470.4 |
Cost of Sales |
|
|
N/A |
N/A |
(171.7) |
(190.4) |
(206.8) |
(217.5) |
N/A |
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 |
N/A |
EBITDA IFRS16 |
|
|
24.3 |
28.0 |
31.6 |
34.7 |
42.2 |
38.8 |
39.9 |
46.0 |
53.3 |
59.5 |
Op Profit (before SBP) |
|
|
18.3 |
22.5 |
25.2 |
28.3 |
35.6 |
32.2 |
34.7 |
41.3 |
47.3 |
53.3 |
Net Interest |
|
|
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(1.6) |
(1.5) |
(0.6) |
(2.5) |
(2.7) |
Other financial - norm |
|
|
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.9) |
(3.5) |
(4.3) |
(5.1) |
(5.0) |
(5.0) |
Other financial |
|
|
2.1 |
(0.2) |
(4.2) |
(4.5) |
2.3 |
0.9 |
(3.0) |
(0.4) |
(0.4) |
(0.4) |
Intangible Amortisation |
|
|
(0.3) |
(0.9) |
(1.2) |
(2.2) |
(3.5) |
(3.7) |
(3.7) |
(3.7) |
(3.7) |
(3.7) |
Exceptionals |
|
|
(4.8) |
(2.0) |
(3.8) |
(4.2) |
(4.3) |
(9.3) |
(3.8) |
0.0 |
(5.0) |
(1.0) |
Profit Before Tax (norm) |
|
|
14.0 |
18.5 |
20.7 |
24.4 |
30.9 |
27.1 |
29.0 |
35.6 |
39.8 |
45.6 |
Profit Before Tax (company norm) |
|
15.8 |
20.4 |
22.9 |
26.3 |
32.6 |
28.8 |
30.6 |
37.7 |
41.8 |
47.6 |
|
Profit Before Tax (statutory) |
|
|
11.0 |
15.4 |
11.5 |
13.5 |
25.4 |
15.0 |
18.5 |
31.4 |
30.7 |
40.4 |
Tax |
|
|
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(6.0) |
(4.1) |
(3.5) |
(7.8) |
(8.8) |
(10.5) |
Other |
|
|
0.1 |
0.0 |
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 |
25.5 |
27.7 |
31.1 |
35.1 |
Profit After Tax (statutory) |
|
|
8.1 |
13.0 |
8.5 |
9.9 |
19.4 |
10.9 |
15.0 |
23.6 |
21.9 |
29.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avge Number of Shares Outstanding (m) |
|
|
59.2 |
60.6 |
61.1 |
68.0 |
80.2 |
80.3 |
80.6 |
80.9 |
88.2 |
89.2 |
Avge Number of Shares Outstanding FD (m) |
|
|
61.5 |
62.2 |
63.1 |
69.8 |
81.1 |
81.0 |
80.8 |
82.4 |
89.8 |
90.7 |
EPS FD - norm (p) |
|
|
18.0 |
24.7 |
24.4 |
26.8 |
29.6 |
26.1 |
29.1 |
33.6 |
34.6 |
38.7 |
EPS FD - co norm (p) |
|
|
21.1 |
27.7 |
27.8 |
29.5 |
31.7 |
28.2 |
31.1 |
36.2 |
36.8 |
40.9 |
EPS - statutory (p) |
|
|
13.2 |
20.8 |
13.4 |
14.1 |
23.9 |
13.5 |
18.6 |
28.6 |
24.4 |
33.0 |
Dividend per share (p) |
|
|
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
3.1 |
8.2 |
9.0 |
9.8 |
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
N/A |
N/A |
36.7 |
36.5 |
37.5 |
36.4 |
N/A |
N/A |
N/A |
N/A |
EBITDA Margin (%) |
|
|
10.9 |
11.9 |
11.7 |
11.6 |
12.8 |
11.3 |
12.3 |
11.6 |
12.2 |
12.7 |
Op Margin (before GW and except.) (%) |
|
|
8.2 |
9.5 |
9.3 |
9.4 |
10.8 |
9.4 |
10.7 |
10.4 |
10.8 |
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
78.3 |
93.4 |
98.8 |
147.9 |
138.0 |
150.8 |
141.2 |
140.9 |
211.5 |
211.4 |
Intangible Assets |
|
|
26.9 |
44.7 |
44.8 |
98.9 |
94.9 |
96.5 |
93.6 |
89.9 |
155.2 |
151.5 |
Tangible Assets |
|
|
37.6 |
38.2 |
43.0 |
45.0 |
42.3 |
49.6 |
47.6 |
51.1 |
56.4 |
59.9 |
Other Fixed Assets |
|
|
13.8 |
10.5 |
11.0 |
4.0 |
0.8 |
4.7 |
0.0 |
0.0 |
0.0 |
0.0 |
Current Assets |
|
|
100.4 |
119.4 |
165.3 |
165.1 |
169.5 |
188.7 |
171.0 |
201.8 |
227.7 |
255.0 |
Stocks |
|
|
52.2 |
60.1 |
70.3 |
74.9 |
79.5 |
78.9 |
78.1 |
93.4 |
103.0 |
110.9 |
Debtors |
|
|
42.6 |
53.4 |
57.5 |
64.4 |
62.8 |
62.5 |
64.6 |
75.6 |
83.3 |
89.2 |
Cash |
|
|
5.6 |
5.9 |
37.5 |
25.8 |
27.2 |
47.3 |
28.3 |
32.8 |
41.3 |
54.9 |
Current Liabilities |
|
|
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(85.1) |
(79.2) |
(104.1) |
(112.1) |
(118.1) |
(125.6) |
Creditors |
|
|
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(81.3) |
(79.1) |
(104.1) |
(112.1) |
(118.1) |
(125.6) |
Short term borrowings |
|
|
(1.4) |
(2.8) |
(30.9) |
(8.5) |
(3.8) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
|
|
(67.4) |
(97.6) |
(101.8) |
(118.6) |
(96.7) |
(155.9) |
(59.7) |
(55.5) |
(114.2) |
(112.9) |
Long term borrowings |
|
|
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(58.4) |
(83.6) |
(17.8) |
(25.8) |
(87.8) |
(87.8) |
Other long term liabilities |
|
|
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(38.3) |
(72.3) |
(41.9) |
(29.7) |
(26.4) |
(25.1) |
Net Assets |
|
|
51.3 |
47.6 |
56.6 |
104.6 |
125.7 |
104.4 |
148.4 |
175.1 |
206.9 |
227.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
16.2 |
18.5 |
25.5 |
23.5 |
35.3 |
34.8 |
60.0 |
29.3 |
44.6 |
52.4 |
Net Interest |
|
|
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(3.5) |
(3.2) |
(2.4) |
(4.3) |
(4.5) |
Tax |
|
|
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(4.6) |
(5.3) |
(3.5) |
(7.5) |
(9.0) |
(10.4) |
Capex |
|
|
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(5.5) |
(4.8) |
(2.8) |
(9.0) |
(9.3) |
(9.8) |
Acquisitions/disposals |
|
|
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.1) |
(9.2) |
0.0 |
0.0 |
(80.0) |
0.0 |
Financing |
|
|
0.2 |
0.1 |
0.0 |
30.1 |
(0.9) |
(0.8) |
0.3 |
(0.8) |
17.2 |
(0.8) |
Dividends |
|
|
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.4) |
(7.0) |
0.0 |
(9.1) |
(8.2) |
(8.9) |
Net Cash Flow |
|
|
13.4 |
(17.1) |
7.9 |
(24.2) |
14.0 |
4.2 |
50.8 |
0.5 |
(49.0) |
18.0 |
Opening net debt/(cash) |
|
|
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(10.5) |
(7.0) |
46.5 |
IFRS16 Finance leases |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(3.8) |
(4.3) |
(4.0) |
(4.5) |
(4.5) |
Other |
|
|
(0.2) |
(1.2) |
1.4 |
0.3 |
(1.9) |
(1.8) |
0.4 |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(10.5) |
(7.0) |
46.5 |
32.9 |
IFRS16 lease liabilities |
|
|
|
|
|
|
|
(25.1) |
(24.2) |
(23.7) |
(23.7) |
(23.7) |
Source: Company accounts, Edison Investment Research
|
|
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