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Market capitalisation
—
Research: Industrials
Trading in the first four months of FY17 has been in line with management expectations and our estimates are unchanged. Market commentary is cautious, but as outlined in our recent note Epwin has a number of internal initiatives underway to further improve the business and mitigate near-term input cost pressures. In our view, longer-term prospects are somewhat better than the current rating is implying.
Written by
Epwin Group |
FY17 starts in line with expectations |
AGM update |
Construction & materials |
26 May 2017 |
Share price performance
Business description
Next events
Analysts
Epwin Group is a research client of Edison Investment Research Limited |
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Trading in the first four months of FY17 has been in line with management expectations and our estimates are unchanged. Market commentary is cautious, but as outlined in our recent note Epwin has a number of internal initiatives underway to further improve the business and mitigate near-term input cost pressures. In our view, longer-term prospects are somewhat better than the current rating is implying.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15** |
256.0 |
19.2 |
11.7 |
6.4 |
10.4 |
5.3 |
12/16** |
293.2 |
24.3 |
14.7 |
6.6 |
8.2 |
5.4 |
12/17e |
306.3 |
24.4 |
14.0 |
6.7 |
8.7 |
5.5 |
12/18e |
311.6 |
25.4 |
14.3 |
7.0 |
8.5 |
5.8 |
Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals. **FY15 and FY16 EPS benefited from recovered tax losses.
A steady start to the year
For the UK building materials sector, Q2, Q3 and into Q4 are the busiest periods, but it is encouraging to know that the first four months of Epwin’s trading year have met management expectations. Industry-wide materials input cost rises have been flagged previously and there appears to be no additional caution in this area. In flat RMI markets, Epwin is focusing on operational improvements (eg in fabrication) and marketing initiatives (eg branding and range development of window systems and canopy products plus greater co-ordination across group companies). H117 will benefit from an extra five months of National Plastics trading and we expect Fabrication & Distribution to show a more robust y-o-y performance. We will take a view on the likely shape and quantum of H117 results at the end of the half year.
Variable newsflow, flat volumes anticipated
Recent comments from adjacent companies (ie Eurocell, Safestyle, Tyman and Titon Holdings) have shown some variability reflecting respective sector exposures. From a general industry perspective, new housebuilding demand appears to be robust, while retail has clearly slowed recently. After taking soundings across the door and window supply chain, we believe that the broad expectation is for flat trade volumes and improved pricing in FY17 reflecting a pass through of higher input prices. Our underlying Epwin model is consistent with this, supplemented by the full year effects of National Plastics. As noted above, building products suppliers exhibit a calendar H2 weighting; Q316 contained some softness so we believe that a flat volume expectation is a reasonable expectation for 2017 overall.
Valuation: Overly cautious
Epwin’s share price has eased back from FY17 highs of 128.5p but has still outperformed the FTSE All-Share Index by c 16% ytd. Notwithstanding this, it is currently slightly below year ago levels. Valuation multiples are little changed from our last note, being a P/E of 8.7x and EV/EBITDA of 5.6x for this year with a prospective 5.5% dividend yield. While market caution has been expressed, we feel that this has been overly discounted at current share price levels.
Financial summary
Exhibit 1: Financial summary
£m |
2012 |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
2019e |
|||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|
|
|
Restated |
|
|
|
|
|
|
|
Revenue |
|
|
294.4 |
255.3 |
259.5 |
256.0 |
293.2 |
306.3 |
311.6 |
317.3 |
|
Cost of Sales |
|
|
(209.9) |
(185.8) |
(186.7) |
(178.6) |
(200.6) |
(208.3) |
(211.9) |
(215.8) |
|
Gross Profit |
|
|
84.5 |
69.5 |
72.8 |
77.4 |
92.6 |
98.0 |
99.7 |
101.5 |
|
EBITDA |
|
|
21.8 |
21.4 |
24.5 |
25.6 |
33.3 |
34.1 |
35.2 |
36.0 |
|
Operating Profit (before GW and except.) |
15.4 |
15.6 |
19.5 |
20.1 |
25.6 |
25.9 |
26.7 |
27.3 |
|||
Intangible Amortisation |
|
|
(1.7) |
(1.7) |
(1.7) |
(0.0) |
(1.1) |
(1.3) |
(1.3) |
(1.3) |
|
Exceptionals |
|
|
(4.3) |
(5.1) |
2.3 |
(0.6) |
(0.2) |
0.0 |
0.0 |
0.0 |
|
Other |
|
|
0.0 |
0.0 |
(0.8) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
|
Operating Profit |
|
|
9.4 |
8.8 |
19.3 |
19.1 |
24.0 |
24.3 |
25.1 |
25.7 |
|
Net Interest |
|
|
(1.9) |
(1.0) |
(0.7) |
(0.5) |
(1.0) |
(1.2) |
(1.0) |
(0.6) |
|
Profit Before Tax (norm) |
|
|
13.5 |
14.6 |
18.0 |
19.2 |
24.3 |
24.4 |
25.4 |
26.4 |
|
Profit Before Tax (FRS 3) |
|
|
7.5 |
7.9 |
18.6 |
18.6 |
23.0 |
23.1 |
24.1 |
25.1 |
|
Tax |
|
|
(2.2) |
(1.3) |
(3.5) |
(3.3) |
(3.4) |
(4.4) |
(4.8) |
(4.7) |
|
Profit After Tax (norm) |
|
|
10.4 |
12.4 |
14.4 |
15.9 |
20.9 |
20.0 |
20.6 |
21.6 |
|
Profit After Tax (FRS 3) |
|
|
4.5 |
5.1 |
15.1 |
15.3 |
19.6 |
18.7 |
19.3 |
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
14.1 |
14.4 |
15.1 |
|
EPS – normalised* (p) FD |
|
|
|
|
11.2 |
11.7 |
14.7 |
14.0 |
14.3 |
15.0 |
|
EPS - FRS 3* (p) |
|
|
3.7 |
4.2 |
11.8 |
11.3 |
13.8 |
13.1 |
13.5 |
14.2 |
|
Dividend per share (p) |
|
|
0.0 |
0.0 |
4.2 |
6.4 |
6.6 |
6.7 |
7.0 |
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
28.7 |
27.2 |
28.1 |
30.2 |
31.6 |
32.0 |
32.0 |
32.0 |
|
EBITDA Margin (%) |
|
|
7.4 |
8.4 |
9.4 |
10.0 |
11.3 |
11.1 |
11.3 |
11.3 |
|
Operating Margin (before GW and except.) (%) |
5.2 |
6.1 |
7.5 |
7.9 |
8.7 |
8.5 |
8.6 |
8.6 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
56.9 |
54.7 |
53.8 |
93.5 |
108.5 |
112.8 |
111.5 |
110.0 |
|
Intangible Assets |
|
|
27.9 |
26.4 |
24.7 |
59.7 |
70.2 |
74.2 |
72.9 |
71.6 |
|
Tangible Assets |
|
|
26.1 |
25.1 |
26.2 |
33.1 |
37.9 |
38.2 |
38.3 |
38.1 |
|
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 |
73.1 |
80.5 |
83.9 |
|
Stocks |
|
|
20.9 |
21.7 |
22.4 |
23.6 |
28.2 |
29.3 |
29.8 |
30.3 |
|
Debtors |
|
|
37.4 |
40.1 |
37.6 |
41.5 |
41.4 |
43.0 |
43.7 |
44.4 |
|
Cash |
|
|
1.6 |
0.3 |
2.3 |
22.1 |
13.0 |
0.8 |
7.1 |
9.2 |
|
Current Liabilities |
|
|
(53.2) |
(54.5) |
(49.0) |
(68.8) |
(79.2) |
(65.8) |
(67.4) |
(63.9) |
|
Creditors |
|
|
(49.1) |
(51.5) |
(48.6) |
(53.2) |
(62.9) |
(60.8) |
(62.4) |
(63.9) |
|
Short term borrowings |
|
|
(4.1) |
(3.0) |
(0.4) |
(15.6) |
(16.3) |
(5.0) |
(5.0) |
0.0 |
|
Long Term Liabilities |
|
|
(32.0) |
(25.7) |
(4.3) |
(31.8) |
(21.0) |
(16.0) |
(11.0) |
(6.0) |
|
Long term borrowings |
|
|
(20.6) |
(16.0) |
(0.8) |
(20.9) |
(17.3) |
(12.3) |
(7.3) |
(2.3) |
|
Other long term liabilities |
|
|
(11.4) |
(9.7) |
(3.5) |
(10.9) |
(3.7) |
(3.7) |
(3.7) |
(3.7) |
|
Net Assets |
|
|
31.5 |
36.6 |
62.8 |
80.1 |
90.9 |
104.1 |
113.7 |
124.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
15.7 |
12.1 |
19.8 |
23.8 |
30.8 |
32.8 |
34.6 |
35.4 |
|
Net Interest |
|
|
(1.4) |
(0.9) |
(0.7) |
(0.5) |
(1.0) |
(1.2) |
(0.9) |
(0.6) |
|
Tax |
|
|
(1.6) |
(0.9) |
(1.7) |
(2.3) |
(3.8) |
(3.9) |
(4.3) |
(4.2) |
|
Capex |
|
|
(4.6) |
(4.9) |
(5.6) |
(9.0) |
(12.7) |
(9.0) |
(8.5) |
(8.5) |
|
Acquisitions/disposals |
|
|
(28.2) |
(0.2) |
0.0 |
(20.9) |
(10.2) |
(5.3) |
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) |
(9.4) |
(9.7) |
(10.0) |
|
Net Cash Flow |
|
|
(20.2) |
5.2 |
19.9 |
(15.6) |
(6.1) |
4.1 |
11.3 |
12.1 |
|
Opening net debt/(cash) |
|
|
0.5 |
23.2 |
18.7 |
(1.1) |
14.4 |
20.6 |
16.5 |
5.2 |
|
HP finance leases initiated |
|
|
(2.5) |
(0.5) |
(0.3) |
0.4 |
1.9 |
0.0 |
0.0 |
0.0 |
|
Other |
|
|
0.0 |
(0.1) |
0.2 |
(0.3) |
(2.1) |
0.0 |
0.0 |
0.0 |
|
Closing net debt/(cash) |
|
|
23.2 |
18.6 |
(1.1) |
14.4 |
20.6 |
16.5 |
5.2 |
(6.9) |
|
Source: Epwin Group accounts, Edison Investment Research. Note: *FY13 to FY16 EPS benefited in part from recovered tax losses.
|
|
Cranswick has posted yet another year of strong growth. The business is witnessing growth in all its categories and strong innovation is keeping its offering relevant and desirable. Management has guided towards significant capex investment in 2017 to continue increasing capacity to match its growth prospects.