Norcros — Clear trading recovery seen

Norcros (LSE: NXR)

Last close As at 22/05/2024

GBP2.20

2.00 (0.92%)

Market capitalisation

GBP198m

More on this equity

Research: Industrials

Norcros — Clear trading recovery seen

Trading in both divisions has clearly improved post the COVID-19 lockdown and Norcros’s robust liquidity position has been maintained. Equally, the focus on cash/cost management, new product innovation and taking market share is undiminished, leaving the company well placed to navigate market conditions. Our estimates remain suspended pending further normalisation of market conditions.

Analyst avatar placeholder

Written by

Industrials

Norcros

Clear trading recovery seen

AGM update

Construction & materials

3 August 2020

Price

155.3p

Market cap

£125m

ZAR21.8/£

Net debt (£m) at end June 2020

35.2

Shares in issue

81.6m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.3

(2.2)

(24.9)

Rel (local)

6.3

(2.8)

(5.5)

52-week high/low

305.0p

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

Trading update

15 October

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Trading in both divisions has clearly improved post the COVID-19 lockdown and Norcros’s robust liquidity position has been maintained. Equally, the focus on cash/cost management, new product innovation and taking market share is undiminished, leaving the company well placed to navigate market conditions. Our estimates remain suspended pending further normalisation of market conditions.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

300.1

24.4

26.8

7.8

5.8

5.0

03/19

331.0

30.9

29.6

8.4

5.2

5.4

03/20

342.0

27.1

26.1

3.1

5.9

2.0

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.

UK sales recovering with July ahead year-on-year

AGM comments quantified the initial impact COVID-19 has had on trading since the FY20 year end and the subsequent recovery trajectory to date. In the UK, ytd sales were 27% below the prior year’s 16-week equivalent, including a 50%+ dip in the first nine weeks followed by a sharp rebound in June; July is currently tracking 15% ahead year-on-year. As seen elsewhere, sales channels with robust online customer-facing platforms (including order for delivery and click and collect) have typically traded better than traditional retail and merchant outlets and some market share shifts are likely as a result. From the company, our sense is that the sales mix is favouring smaller ticket items, which fits to some extent with restricted trades access to residential property. Production facilities are all operational now (Johnson Tiles re-started towards the end of July) and furloughed staff levels continue to fall.

Retail leads the way in South Africa

In local currency, South Africa (around one-third of FY20 revenue and one-quarter of EBIT) saw a sharper initial lockdown-related dip (c 70% down), but has been recovering well in the last two months, tracking 5% below the prior year in July (and 41% ytd). A weaker rand amplifies this metric to c 50% down year-on-year in sterling terms. Retail/residential demand led the bounce back (benefiting Tile Africa in particular), whereas commercial sales have lagged thus far. As in the UK, all manufacturing locations are operating and all Tile Africa (retail) outlets are also open.

Strong liquidity position retained

Management reports that a small profit was generated in the first quarter’s trading overall and net debt reduced slightly since March (and the 7 June update) to c £35m at the end of June (representing 1x trailing 12-month EBITDA). Government support scheme cash will have benefited the ytd performance, though the deferred payment element is reducing we believe. In contrast to the usual seasonal working capital increase, a reduction since the end of FY20 is likely to have contributed to the net debt outturn. As things stand, Norcros has retained or slightly improved its liquidity position and is clearly operating within the cash outflow scenario outlined by management with its FY20 results.

Exhibit 1: Financial summary

£m

2015

2016

2017

2018

2019

2020

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Revenue

 

 

222.1

235.9

271.2

300.1

331.0

342.0

Cost of Sales

 

 

N/A

N/A

(171.7)

(190.4)

(206.8)

N/A

Gross Profit

 

 

N/A

N/A

99.5

109.7

124.2

N/A

EBITDA IFRS 16

 

 

24.3

28.0

31.6

34.7

42.2

38.8

Op Profit (before SBP)

 

 

18.3

22.5

25.2

28.3

35.6

32.2

Net Interest

 

 

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(1.6)

Other financial – norm

 

 

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.5)

Other financial

 

 

2.1

(0.2)

(4.2)

(4.5)

2.3

0.9

Intangible Amortisation

 

 

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(3.7)

Exceptionals

 

 

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(9.3)

Profit Before Tax (norm)

 

 

14.0

18.5

20.7

24.4

30.9

27.1

Profit Before Tax (company norm)

 

15.8

20.4

22.9

26.3

32.6

28.8

Profit Before Tax (statutory)

 

 

11.0

15.4

11.5

13.5

25.4

15.0

Tax

 

 

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(4.1)

Other

 

 

0.1

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

Profit After Tax (statutory)

 

 

8.1

13.0

8.5

9.9

19.4

10.9

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

59.2

60.6

61.1

68.0

80.2

80.3

Average number of Shares Outstanding FD (m)

 

61.5

62.2

63.1

69.8

81.1

81.0

EPS fully diluted - norm (p)

 

 

18.0

24.7

24.4

26.8

29.6

26.1

EPS fully diluted - co norm (p)

 

 

21.1

27.7

27.8

29.5

31.7

28.2

EPS - statutory (p)

 

 

13.2

20.8

13.4

14.1

23.9

13.5

Dividend per share (p)

 

 

5.6

6.6

7.2

7.8

8.4

3.1

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

36.7

36.5

37.5

N/A

EBITDA Margin (%)

 

 

10.9

11.9

11.7

11.6

12.8

11.3

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

 

8.2

9.5

9.3

9.4

10.8

9.4

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

78.3

93.4

98.8

147.9

138.0

150.8

Intangible Assets

 

 

26.9

44.7

44.8

98.9

94.9

96.5

Tangible Assets

 

 

37.6

38.2

43.0

45.0

42.3

49.6

Investments

 

 

13.8

10.5

11.0

4.0

0.8

4.7

Current Assets

 

 

100.4

119.4

165.3

165.1

169.5

188.7

Stocks

 

 

52.2

60.1

70.3

74.9

79.5

78.9

Debtors

 

 

42.6

53.4

57.5

64.4

62.8

62.5

Cash

 

 

5.6

5.9

37.5

25.8

27.2

47.3

Current Liabilities

 

 

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(79.2)

Creditors

 

 

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(79.1)

Short term borrowings

 

 

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

(0.1)

Long Term Liabilities

 

 

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(155.9)

Long term borrowings

 

 

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(83.6)

Other long term liabilities

 

 

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(72.3)

Net Assets

 

 

51.3

47.6

56.6

104.6

125.7

104.4

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

16.2

18.5

25.5

23.5

35.3

34.8

Net Interest

 

 

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(3.5)

Tax

 

 

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(5.3)

Capex

 

 

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(4.8)

Acquisitions/disposals

 

 

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.2)

Financing

 

 

0.2

0.1

0.0

30.1

(0.9)

(0.8)

Dividends

 

 

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

Net Cash Flow

 

 

13.4

(17.1)

7.9

(24.2)

14.0

4.2

Opening net debt/(cash)

 

 

27.4

14.2

32.5

23.2

47.1

35.0

IFRS 16 finance leases

 

 

0.0

0.0

0.0

0.0

0.0

(3.8)

Other

 

 

(0.2)

(1.2)

1.4

0.3

(1.9)

(1.8)

Closing net debt/(cash)

 

 

14.2

32.5

23.2

47.1

35.0

36.4

IFRS 16 lease liabilities

 

 

 

 

 

 

 

(25.1)

Source: Company accounts

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 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 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 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

More on Norcros

View All

Latest from the Industrials sector

View All Industrials content

Research: Metals & Mining

Gemfields Group — Cash preservation ahead of December auctions

Gemfields has provided an update on the impact of COVID-19 on its business. Mining remains suspended at both MRM and Kagem and will not resume before the end of September and October, respectively. The company hopes to hold its first auctions since February in December, but that remains subject to uncertainty given travel restrictions. Gemfields ended June with cash of US$53.6m and net cash of US$9.3m, which, together with cost-cutting measures, positions it well to continue to weather the storm until the planned December auctions.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free