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Research: Industrials
Epwin Group
Written by
Epwin Group |
Clear drivers for progress |
H116 update |
Construction & materials |
18 August 2016 |
Share price performance
Business description
Next events
Analysts
Epwin Group is a research client of Edison Investment Research Limited |
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Coming either side of the Brexit result, H116 pre-close comments were less clear about FY16 prospects than those made at the AGM. Focus on operational improvements and the integration of 2015 acquisitions is continuing and progress will be the key determinant of the full-year outcome. Our estimates are unchanged and we continue to expect a good step forward in FY16 earnings.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
259.5 |
18.0 |
11.2 |
4.2 |
9.6 |
3.9 |
12/15 |
256.0 |
19.2 |
11.7 |
6.4 |
9.3 |
5.9 |
12/16e |
291.7 |
24.2 |
13.8 |
6.6 |
7.9 |
6.1 |
12/17e |
302.5 |
25.4 |
14.4 |
6.7 |
7.6 |
6.2 |
Note: *PBT and EPS FD are normalised, excluding intangible amortisation and exceptionals.
Natural caution, limited visibility
In the first quarter of 2016, we felt that other UK RMI sector building products suppliers tended towards more positive guidance than Epwin’s view of generally flat markets. At the subsequent AGM (24 May), management maintained existing FY16 guidance without commenting further on market conditions at that time and has most recently confirmed that H116 trading met expectations. Since the Brexit announcement, commentators have cited increased uncertainty and Epwin has echoed this. It operates with relatively short order visibility with products feeding into different stages of build cycles and exposure to trends across the range of market segments served. At some point, weaker sterling may result in some price pressure from polymer materials ultimately linked to US dollar feedstock costs.
2016 earnings progress largely from acquisitions
Investment and process improvement has been given greater prominence since IPO. This has supported the roll-out of a new/replacement window profile system (Optima), which will run into early 2017. The business platform has also been strengthened to facilitate acquisitive activity. Ecodeck (wood plastic composite decking and balcony products) and Stormking (glass reinforced plastic functional and decorative exterior building products) brought new manufacturing processes to the group in H215. They are now integrated into group functions with distribution channels to be aligned progressively. We expect FY16 incremental revenue and EBIT contributions from these businesses of c £29m and c £5m respectively (before associated funding costs) and modest underlying progress elsewhere.
Valuation: P/E below 10x, yield c 6%
Having broadly tracked the FT All-Share Index from the beginning of the year, Epwin’s share price moved lower following the Brexit outcome, to a 100p-110p trading range (and is c 17% down year to date). Others with UK RMI sector exposure (eg TPK, ECEL, SHI) have a similar chart pattern. Epwin’s FY16e P/E and EV/EBITDA are now 7.9x and 4.8x respectively, with a prospective dividend yield of 6.1% on our estimates. We believe the work being undertaken to improve business performance will provide some resilience in current market conditions.
Exhibit 1: Financial summary
£m |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|
Restated |
|
|
|
|
|
Revenue |
|
|
294.4 |
255.3 |
259.5 |
256.0 |
291.7 |
302.5 |
311.0 |
Cost of Sales |
|
|
(209.9) |
(185.8) |
(186.7) |
(178.6) |
(203.5) |
(211.0) |
(216.9) |
Gross Profit |
|
|
84.5 |
69.5 |
72.8 |
77.4 |
88.2 |
91.5 |
94.0 |
EBITDA |
|
|
21.8 |
21.3 |
24.5 |
25.6 |
33.3 |
34.5 |
35.6 |
Operating Profit (before GW and except.) |
15.4 |
15.5 |
19.5 |
20.1 |
25.8 |
26.8 |
27.6 |
||
Intangible Amortisation |
|
|
(1.7) |
(1.7) |
(1.7) |
(0.0) |
(1.0) |
(1.0) |
(1.0) |
Exceptionals |
|
|
(4.3) |
(5.1) |
2.3 |
(0.6) |
0.0 |
0.0 |
0.0 |
Other |
|
|
0.0 |
0.0 |
(0.8) |
(0.4) |
(0.4) |
(0.4) |
(0.4) |
Operating Profit |
|
|
9.4 |
8.7 |
19.3 |
19.1 |
24.4 |
25.4 |
26.2 |
Net Interest |
|
|
(1.9) |
(1.0) |
(0.7) |
(0.5) |
(1.2) |
(1.0) |
(0.5) |
Profit Before Tax (norm) |
|
|
13.5 |
14.5 |
18.0 |
19.2 |
24.2 |
25.4 |
26.7 |
Profit Before Tax (FRS 3) |
|
|
7.5 |
7.8 |
18.6 |
18.6 |
23.2 |
24.4 |
25.7 |
Tax |
|
|
(2.2) |
(1.2) |
(3.5) |
(3.3) |
(4.6) |
(4.8) |
(5.1) |
Profit After Tax (norm) |
|
|
10.4 |
12.3 |
14.4 |
15.9 |
19.6 |
20.5 |
21.6 |
Profit After Tax (FRS 3) |
|
|
4.5 |
5.0 |
15.1 |
15.3 |
18.6 |
19.5 |
20.6 |
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
122.3 |
122.3 |
128.0 |
135.2 |
141.4 |
141.7 |
142.1 |
|
EPS - normalised (p) |
|
|
8.5 |
10.1 |
11.2 |
11.8 |
13.9 |
14.5 |
15.2 |
EPS - normalised (p) FD |
|
|
N/A |
N/A |
11.2 |
11.7 |
13.8 |
14.4 |
15.1 |
EPS - FRS 3 (p) |
|
|
3.7 |
4.1 |
11.8 |
11.3 |
13.2 |
13.8 |
14.5 |
Dividend per share (p) |
|
|
0.0 |
0.0 |
4.2 |
6.4 |
6.6 |
6.7 |
6.9 |
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
28.7 |
27.2 |
28.1 |
30.2 |
30.2 |
30.2 |
30.2 |
EBITDA Margin (%) |
|
|
7.4 |
8.4 |
9.4 |
10.0 |
11.4 |
11.4 |
11.4 |
Operating Margin (before GW and except.) (%) |
5.2 |
6.1 |
7.5 |
7.9 |
8.8 |
8.8 |
8.9 |
||
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
56.9 |
54.7 |
53.8 |
91.7 |
92.7 |
92.5 |
91.0 |
Intangible Assets |
|
|
27.9 |
26.4 |
24.7 |
57.9 |
56.9 |
57.9 |
57.9 |
Tangible Assets |
|
|
26.1 |
25.1 |
26.2 |
33.1 |
35.1 |
33.9 |
32.4 |
Other |
|
|
2.8 |
3.2 |
2.9 |
0.7 |
0.7 |
0.7 |
0.7 |
Current Assets |
|
|
59.9 |
62.1 |
62.3 |
87.2 |
81.7 |
89.7 |
100.0 |
Stocks |
|
|
20.9 |
21.7 |
22.4 |
23.6 |
25.9 |
26.8 |
27.6 |
Debtors |
|
|
37.4 |
40.1 |
37.6 |
41.5 |
44.2 |
45.7 |
46.8 |
Cash |
|
|
1.6 |
0.3 |
2.3 |
22.1 |
11.6 |
17.1 |
25.6 |
Current Liabilities |
|
|
(53.2) |
(54.5) |
(49.0) |
(68.8) |
(54.5) |
(57.7) |
(60.5) |
Creditors |
|
|
(49.1) |
(51.5) |
(48.6) |
(53.2) |
(54.5) |
(57.7) |
(60.5) |
Short term borrowings |
|
|
(4.1) |
(3.0) |
(0.4) |
(15.6) |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
|
|
(32.0) |
(25.7) |
(4.3) |
(30.0) |
(30.0) |
(23.5) |
(18.5) |
Long term borrowings |
|
|
(20.6) |
(16.0) |
(0.8) |
(20.9) |
(20.9) |
(15.9) |
(10.9) |
Other long term liabilities |
|
|
(11.4) |
(9.7) |
(3.5) |
(9.1) |
(9.1) |
(7.6) |
(7.6) |
Net Assets |
|
|
31.5 |
36.6 |
62.8 |
80.1 |
89.9 |
100.8 |
111.9 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
15.7 |
12.0 |
19.8 |
23.8 |
28.7 |
33.2 |
34.6 |
Net Interest |
|
|
(1.4) |
(0.9) |
(0.7) |
(0.5) |
(1.2) |
(1.0) |
(0.5) |
Tax |
|
|
(1.6) |
(0.9) |
(1.7) |
(2.3) |
(4.1) |
(4.3) |
(4.6) |
Capex |
|
|
(4.6) |
(4.9) |
(5.6) |
(9.0) |
(9.5) |
(6.5) |
(6.5) |
Acquisitions/disposals |
|
|
(28.2) |
(0.2) |
0.0 |
(20.9) |
0.0 |
(1.5) |
0.0 |
Financing |
|
|
0.0 |
0.0 |
10.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Dividends |
|
|
0.0 |
0.0 |
(1.9) |
(6.7) |
(8.8) |
(9.4) |
(9.6) |
Net Cash Flow |
|
|
(20.2) |
5.1 |
19.9 |
(15.6) |
5.1 |
10.5 |
13.5 |
Opening net debt/(cash) |
|
|
0.5 |
23.2 |
18.7 |
(1.1) |
14.4 |
9.3 |
(1.2) |
HP finance leases initiated |
|
|
(2.5) |
(0.5) |
(0.3) |
0.4 |
0.0 |
0.0 |
0.0 |
Other |
|
|
0.0 |
(0.1) |
0.2 |
(0.3) |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
23.2 |
18.7 |
(1.1) |
14.4 |
9.3 |
(1.2) |
(14.7) |
Source: Company accounts, Edison Investment Research
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