Epwin Group — Update 7 February 2017

Epwin Group (AIM: EPWN)

Last close As at 28/03/2024

GBP0.77

1.50 (1.99%)

Market capitalisation

GBP108m

More on this equity

Research: Industrials

Epwin Group — Update 7 February 2017

Epwin Group

Analyst avatar placeholder

Written by

Industrials

Epwin Group

Meeting FY16 expectations

Year-end update

Construction & materials

7 February 2017

Price

104.00p

Market cap

£147m

Net debt (£m) at end June 2016

29.9

Shares in issue

141.5m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.2)

6.4

(15.5)

Rel (local)

(3.8)

(0.6)

(30.3)

52-week high/low

142.25p

94.25p

Business description

Epwin 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

FY16 results

6 April 2017

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Epwin Group is a research client of Edison Investment Research Limited

Year-end commentary included an in-line trading update for FY16. Epwin has progressed in a number of different areas in the year, not least the roll-out of a new window system. FY17 will also have its challenges but we believe there is resilience in the Epwin model and the current rating offers investors scope for good capital growth alongside strong income returns.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

259.5

18.0

11.2

4.2

9.3

4.0

12/15

256.0

19.2

11.7

6.4

8.9

6.2

12/16e

298.0

24.5

14.0

6.6

7.4

6.3

12/17e

313.5

25.9

14.6

6.9

7.1

6.6

Note: *PBT and EPS FD are normalised, excluding intangible amortisation and exceptionals.

A year of progress

While market conditions have again been described as challenging, Epwin states that FY16 profitability will be in line with expectations. Our estimates show a good uplift over the prior year; we believe the majority of the y-o-y increase will have been generated by acquisitions (Stormking, Ecodeck and, to a lesser extent, National Plastics). These businesses have added new products and processes to the Epwin portfolio and broadened distribution reach. Within existing operations, we see the successful roll-out of the new Optima window system as significant. It consolidates customer ties, updates the company’s offer and, now the transition is complete, should strengthen market presence in FY17. Elsewhere, we expect roofline and rainwater activities (part of Extrusion & Moulding) to have had a reasonably good year, while Fabrication & Distribution’s performance will continue to reflect some operational challenges previously noted.

Cash flow, input costs and investment

The update also referenced strong cash generation; our end FY16 £23m net debt estimate includes a c £7m H2 net cash inflow and is equivalent to 0.7x our expected EBITDA for the year. Rising input prices are also cited – affecting all UK polymer users – and the extent to which underlying cost management and/or market pricing can recover this will become apparent as FY17 unfolds. Epwin should receive some annualised benefits from National Plastics and will continue to invest in operational improvements across the group. We have made no change to estimates following the year-end trading update.

Valuation: Prospective P/E and yield convergence

Epwin’s share price has mostly traded at 100-110p since mid-2016 and has remained there following the year-end update. On expected FY16 earnings, the company is trading on a P/E of just 7.4x and EV/EBITDA of 5.10x with both metrics prospectively trending lower. Moreover, we expect the final dividend declaration alone to yield in excess of 4% (or 6.3% for the year as a whole). We anticipate further, albeit more modest, earnings and dividend growth for the next two years, the end of which would see P/E and yield parity.

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

2018e

December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

 

 

259.5

256.0

298.0

313.5

321.5

Cost of Sales

 

 

(186.7)

(178.6)

(207.9)

(218.7)

(224.3)

Gross Profit

 

 

72.8

77.4

90.1

94.8

97.2

EBITDA

 

 

24.5

25.6

33.8

35.5

36.8

Operating Profit (before GW and except.)

19.5

20.1

26.3

27.8

28.8

Intangible Amortisation

 

 

(1.7)

(0.0)

(1.0)

(1.0)

(1.0)

Exceptionals

 

 

2.3

(0.6)

(0.2)

0.0

0.0

Other

 

 

(0.8)

(0.4)

(0.4)

(0.4)

(0.4)

Operating Profit

 

 

19.3

19.1

24.7

26.4

27.4

Net Interest

 

 

(0.7)

(0.5)

(1.4)

(1.5)

(0.8)

Profit Before Tax (norm)

 

 

18.0

19.2

24.5

25.9

27.7

Profit Before Tax (FRS 3)

 

 

18.6

18.6

23.3

24.9

26.7

Tax

 

 

(3.5)

(3.3)

(4.4)

(4.9)

(5.3)

Profit After Tax (norm)

 

 

14.4

15.9

20.1

20.9

22.4

Profit After Tax (FRS 3)

 

 

15.1

15.3

18.9

19.9

21.4

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

128.0

135.2

141.5

141.7

142.1

EPS - normalised (p)

 

 

11.2

11.8

14.2

14.8

15.8

EPS - normalised fully diluted (p)

 

 

11.2

11.7

14.0

14.6

15.6

EPS - FRS 3 (p)

 

 

11.8

11.3

13.3

14.1

15.1

Dividend per share (p)

 

 

4.2

6.4

6.6

6.9

7.1

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.1

30.2

30.2

30.2

30.2

EBITDA Margin (%)

 

 

9.4

10.0

11.3

11.3

11.4

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

7.5

7.9

8.8

8.9

9.0

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Fixed Assets

 

 

53.8

91.7

106.9

106.7

105.2

Intangible Assets

 

 

24.7

57.9

68.1

69.1

69.1

Tangible Assets

 

 

26.2

33.1

38.4

37.2

35.7

Other

 

 

2.9

0.7

0.4

0.4

0.4

Current Assets

 

 

62.3

87.2

71.2

79.7

90.6

Stocks

 

 

22.4

23.6

28.7

30.2

30.9

Debtors

 

 

37.6

41.5

45.0

47.0

48.0

Cash

 

 

2.3

22.1

(2.4)

2.6

11.6

Current Liabilities

 

 

(49.0)

(68.8)

(58.1)

(61.6)

(64.4)

Creditors

 

 

(48.6)

(53.2)

(58.1)

(61.6)

(64.4)

Short term borrowings

 

 

(0.4)

(15.6)

0.0

0.0

0.0

Long Term Liabilities

 

 

(4.3)

(30.0)

(29.9)

(23.5)

(18.5)

Long term borrowings

 

 

(0.8)

(20.9)

(20.6)

(15.6)

(10.6)

Other long term liabilities

 

 

(3.5)

(9.1)

(9.3)

(7.9)

(7.9)

Net Assets

 

 

62.8

80.1

90.1

101.4

112.9

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

Operating Cash Flow

 

 

19.8

23.8

29.0

33.9

36.0

Net Interest

 

 

(0.7)

(0.5)

(1.4)

(1.5)

(0.8)

Tax

 

 

(1.7)

(2.3)

(3.9)

(4.4)

(4.8)

Capex

 

 

(5.6)

(9.0)

(13.0)

(7.0)

(6.5)

Acquisitions/disposals

 

 

0.0

(20.9)

(10.0)

(1.5)

0.0

Financing

 

 

10.0

0.0

0.0

0.0

0.0

Dividends

 

 

(1.9)

(6.7)

(9.1)

(9.4)

(9.9)

Net Cash Flow

 

 

19.9

(15.6)

(8.4)

10.0

14.0

Opening net debt/(cash)

 

 

18.7

(1.1)

14.4

23.0

13.0

HP finance leases initiated

 

 

(0.3)

0.4

(0.4)

0.0

0.0

Other

 

 

0.2

(0.3)

0.2

0.0

0.0

Closing net debt/(cash)

 

 

(1.1)

14.4

23.0

13.0

(1.0)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

More on Epwin Group

View All

Latest from the Industrials sector

View All Industrials content

Industrials

ACWA Power — Record results for FY23

Industrials

Dowlais Group — Motoring forward

Walker Greenbank — Update 7 February 2017

Walker Greenbank

Continue Reading

Subscribe to Edison

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

Sign up for free