Epwin Group — FY17 in line with expectations

Epwin Group (AIM: EPWN)

Last close As at 19/04/2024

GBP0.86

0.00 (0.00%)

Market capitalisation

GBP123m

More on this equity

Research: Industrials

Epwin Group — FY17 in line with expectations

Epwin encountered some turbulence in FY17 arising from customer ownership changes but ended the year in line with company expectations set following H1 results. Self-help initiatives are ongoing and we believe Epwin remains conservatively financed with a positive cash flow outlook. These factors support our assertion that the company is able to sustain its dividend attraction even during a temporary earnings dip in FY18.

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Industrials

Epwin Group

FY17 in line with expectations

Year-end trading update

Construction & materials

15 February 2018

Price

86p

Market cap

£123m

Net debt (£m) at end June 2017

28.2

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.4)

10.3

(26.7)

Rel (local)

4.0

13.2

(26.8)

52-week high/low

128.5p

65.5p

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

FY17 results

11 April 2018

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

Epwin encountered some turbulence in FY17 arising from customer ownership changes but ended the year in line with company expectations set following H1 results. Self-help initiatives are ongoing and we believe Epwin remains conservatively financed with a positive cash flow outlook. These factors support our assertion that the company is able to sustain its dividend attraction even during a temporary earnings dip in FY18.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15**

256.0

19.2

11.7

6.4

7.4

7.4

12/16**

293.2

24.3

14.7

6.6

5.9

7.7

12/17e

300.3

20.8

11.9

6.7

7.2

7.8

12/18e

276.9

18.8

10.5

6.7

8.2

7.8

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals. **FY15 and FY16 EPS benefited from recovered tax losses.

Market conditions unchanged

Throughout FY17 management consistently described its repair, maintain and improvement (RMI) markets as challenging, while its newbuild exposure, as seen elsewhere, was firmer. Within the product categories, the relatively new Optima 22 window profile system and the Ecodeck range have provided some positive performance impetus though input cost increases have provided headwinds in several business areas. Operationally, the consolidation of Epwin Glass activities on a single existing site at Northampton completed in FY17 and a small extrusion operation is being moved to other group manufacturing sites. Supply to two specific customers whose ownership changed during the year has settled at lower volumes as previously anticipated.

Conservatively financed, strategy intact

Management has understandably reinforced its strategic focus on improving the underlying operational performance (at both COGS and opex levels) as the examples above show. This may not be immediately apparent in headline numbers – and our estimates are unchanged – as the y-o-y customer effects outlined above wash out in FY18. Nevertheless, a healthy underlying cash performance and a conservative gearing position (net debt c 0.9x EBITDA and good interest cover) mean that the company is able to continue to pursue its strategy and at the same time, we believe, stand by existing dividend payout levels.

Valuation: Partial recovery, yield attractions remain

Epwin’s share price has recovered around half of its decline post the earnings downgrades that followed the H1 results. Even allowing for lower FY18e earnings, valuation multiples are still at very low levels (FY18e P/E 8.2x, EV/EBITDA 5.0x). While sector sentiment appears to be subdued, we suspect that the 7.8% dividend yield should attract good support for Epwin’s share price ahead of improving market conditions.

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016

2017e

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Restated

 

 

 

 

 

 

Revenue

 

 

294.4

255.3

259.5

256.0

293.2

300.3

276.9

282.1

Cost of Sales

 

 

(209.9)

(185.8)

(186.7)

(178.6)

(200.6)

(206.0)

(188.3)

(191.9)

Gross Profit

 

 

84.5

69.5

72.8

77.4

92.6

94.3

88.6

90.3

EBITDA

 

 

21.8

21.4

24.5

25.6

33.3

30.6

28.5

29.5

Operating Profit (before GW and except.)

15.4

15.6

19.5

20.1

25.6

22.4

20.1

20.8

Intangible Amortisation

 

 

(1.7)

(1.7)

(1.7)

(0.0)

(1.1)

(1.0)

(1.0)

(1.0)

Exceptionals

 

 

(4.3)

(5.1)

2.3

(0.6)

(0.2)

(5.5)

0.0

0.0

Other

 

 

0.0

0.0

(0.8)

(0.4)

(0.3)

(0.4)

(0.3)

(0.3)

Operating Profit

 

 

9.4

8.8

19.3

19.1

24.0

15.5

18.8

19.5

Net Interest

 

 

(1.9)

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.0)

(0.8)

Profit Before Tax (norm)

 

 

13.5

14.6

18.0

19.2

24.3

20.8

18.8

19.7

Profit Before Tax (FRS 3)

 

 

7.5

7.9

18.6

18.6

23.0

14.3

17.8

18.7

Tax

 

 

(2.2)

(1.3)

(3.5)

(3.3)

(3.4)

(2.7)

(3.6)

(3.5)

Profit After Tax (norm)

 

 

10.4

12.4

14.4

15.9

20.9

17.1

15.2

16.2

Profit After Tax (FRS 3)

 

 

4.5

5.1

15.1

15.3

19.6

11.6

14.2

15.2

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

122.3

128.0

135.2

141.5

142.4

143.2

143.2

EPS - normalised (p)

 

 

8.5

10.1

11.2

11.8

14.8

12.0

10.6

11.3

EPS - normalised (p) FD

 

 

 

 

11.2

11.7

14.7

11.9

10.5

11.2

EPS - FRS 3 (p)

 

 

3.7

4.2

11.8

11.3

13.8

8.1

9.9

10.6

Dividend per share (p)

 

 

0.0

0.0

4.2

6.4

6.6

6.7

6.7

6.8

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.7

27.2

28.1

30.2

31.6

31.4

32.0

32.0

EBITDA Margin (%)

 

 

7.4

8.4

9.4

10.0

11.3

10.2

10.3

10.5

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

5.2

6.1

7.5

7.9

8.7

7.5

7.2

7.4

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

56.9

54.7

53.8

93.5

108.5

107.7

106.8

105.6

Intangible Assets

 

 

27.9

26.4

24.7

59.7

70.2

69.5

68.5

67.5

Tangible Assets

 

 

26.1

25.1

26.2

33.1

37.9

37.8

37.9

37.7

Other

 

 

2.8

3.2

2.9

0.7

0.4

0.4

0.4

0.4

Current Assets

 

 

59.9

62.1

62.3

87.2

82.6

82.4

79.3

80.5

Stocks

 

 

20.9

21.7

22.4

23.6

28.2

29.0

29.0

29.5

Debtors

 

 

37.4

40.1

37.6

41.5

41.4

46.2

43.0

43.7

Cash

 

 

1.6

0.3

2.3

22.1

13.0

7.3

7.3

7.3

Current Liabilities

 

 

(53.2)

(54.5)

(49.0)

(68.8)

(79.2)

(76.7)

(72.9)

(72.4)

Creditors

 

 

(49.1)

(51.5)

(48.6)

(53.2)

(62.9)

(58.2)

(54.8)

(56.3)

Short term borrowings

 

 

(4.1)

(3.0)

(0.4)

(15.6)

(16.3)

(18.6)

(18.1)

(16.2)

Long Term Liabilities

 

 

(32.0)

(25.7)

(4.3)

(31.8)

(21.0)

(18.4)

(13.4)

(8.4)

Long term borrowings

 

 

(20.6)

(16.0)

(0.8)

(20.9)

(17.3)

(14.8)

(9.8)

(4.8)

Other long term liabilities

 

 

(11.4)

(9.7)

(3.5)

(10.9)

(3.7)

(3.6)

(3.6)

(3.6)

Net Assets

 

 

31.5

36.6

62.8

80.1

90.9

95.0

99.7

105.2

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

15.7

12.1

19.8

23.8

30.8

21.0

27.7

28.9

Net Interest

 

 

(1.4)

(0.9)

(0.7)

(0.5)

(1.0)

(1.2)

(1.2)

(0.8)

Tax

 

 

(1.6)

(0.9)

(1.7)

(2.3)

(3.8)

(3.2)

(3.1)

(3.0)

Capex

 

 

(4.6)

(4.9)

(5.6)

(9.0)

(12.7)

(8.5)

(8.5)

(8.5)

Acquisitions/disposals

 

 

(28.2)

(0.2)

0.0

(20.9)

(10.2)

(3.9)

0.0

0.0

Financing

 

 

0.0

0.0

10.0

0.0

0.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(1.9)

(6.7)

(9.1)

(9.5)

(9.5)

(9.6)

Net Cash Flow

 

 

(20.2)

5.2

19.9

(15.6)

(6.1)

(5.4)

5.5

6.9

Opening net debt/(cash)

 

 

0.5

23.2

18.7

(1.1)

14.4

20.6

26.1

20.6

HP finance leases initiated

 

 

(2.5)

(0.5)

(0.3)

0.4

1.9

(0.7)

0.0

0.0

Other

 

 

0.0

(0.1)

0.2

(0.3)

(2.1)

0.6

(0.0)

0.0

Closing net debt/(cash)

 

 

23.2

18.6

(1.1)

14.4

20.6

26.1

20.6

13.7

Source: Company accounts, Edison Investment Research. Note: FY13 to FY16 EPS benefited in part from recovered tax losses.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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