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Currency in GBP
Last close As at 30/03/2023
GBP1.86
▲ −0.50 (−0.27%)
Market capitalisation
GBP160m
Research: Industrials
FY21 started in the teeth of the COVID-19 pandemic but has ended with a third estimates upgrade in six weeks, now resulting in earnings expected to be ahead of FY20. Now in a net cash position also, Norcros is very well placed to navigate current market conditions and to capitalise on further organic and acquisitive opportunities as they arise.
Written by
Toby Thorrington
Norcros |
FY21 profitability exceeds prior year |
FY21 year-end update |
Construction & materials |
19 April 2021 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
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FY21 started in the teeth of the COVID-19 pandemic but has ended with a third estimates upgrade in six weeks, now resulting in earnings expected to be ahead of FY20. Now in a net cash position also, Norcros is very well placed to navigate current market conditions and to capitalise on further organic and acquisitive opportunities as they arise.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/19 |
331.0 |
30.9 |
29.6 |
8.4 |
10.1 |
2.8 |
03/20 |
342.0 |
27.1 |
26.1 |
3.1 |
11.5 |
1.0 |
03/21e |
324.5 |
28.0 |
26.9 |
5.5 |
11.1 |
1.8 |
03/22e |
337.5 |
31.1 |
29.9 |
8.0 |
10.0 |
2.7 |
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.
Revenue momentum maintained, mix improves
Group revenues are inferred to be in line with our model – marginally up in underlying terms and down 5% on a reported basis – while EBIT guidance is now for ‘no less than £33m’ (up c £2m versus previously), which is a modest year-on-year improvement despite the COVID-19-related hit to H121 trading. This performance was all organic and significant because it is most likely the result of regained momentum on a wide front, which is not easy to achieve in such testing trading conditions in a federated business model. Divisionally, both the UK and South African operations had strong H2 trading periods – with like-for-like, constant exchange rate revenue growth of 115% and 123% respectively – and mix improvement (including strong trading at Triton and Merlyn) is probably the key driver behind the required uplift in our FY21 EBIT estimate. Norcros ended FY21 with net cash (pre-IFRS 16 leases) of c £10m, representing a remarkable c £46m net cash inflow from the end-FY20 net debt position. While some of this may unwind through the working capital line during the course of FY21, the company is effectively ungeared and in a very strong position to add further complementary acquisitions to its portfolio of companies and brands.
Earnings and dividend estimates increase again
Management comments allude to further progress in FY22 (albeit with a challenging markets caveat) and, for the third time in six weeks, we are upgrading our EPS estimates, this time by c 8% for FY21 and 5–6% for the following two. We have also made a sharper increase to our FY21 DPS expectation (+1.5p to 5.5p), nudging FY22 and FY23 ahead too.
Valuation: Only modestly re-rated thus far
Norcros’s share price has increased by a further c 12% since our last note and is now up by c 50% ytd (and back to pre-COVID-19 levels). The latter movement is only slightly more than our aggregate upward estimate revisions over the same time period, so the positive re-rating is more modest than might be expected looking at the share price alone. On our new estimates, the FY22e P/E and EV/EBITDA (after pensions cash) are 10.0x and 6.2x respectively.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
2023e |
|||||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||||
PROFIT & LOSS |
|
|
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
|||
Revenue |
|
|
222.1 |
235.9 |
271.2 |
300.1 |
331.0 |
342.0 |
324.5 |
337.5 |
347.8 |
|||
Cost of Sales |
|
|
N/A |
N/A |
(171.7) |
(190.4) |
(206.8) |
(217.5) |
N/A |
N/A |
N/A |
|||
Gross Profit |
|
|
N/A |
N/A |
99.5 |
109.7 |
124.2 |
124.5 |
N/A |
N/A |
N/A |
|||
EBITDA IFRS 16 |
|
|
24.3 |
28.0 |
31.6 |
34.7 |
42.2 |
38.8 |
38.7 |
41.4 |
43.1 |
|||
Op Profit (before SBP) |
|
|
18.3 |
22.5 |
25.2 |
28.3 |
35.6 |
32.2 |
33.5 |
35.9 |
37.4 |
|||
Net Interest |
|
|
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(1.6) |
(1.5) |
(0.8) |
(0.7) |
|||
Other financial - norm |
|
|
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.9) |
(3.5) |
(4.0) |
(4.0) |
(4.0) |
|||
Other financial |
|
|
2.1 |
(0.2) |
(4.2) |
(4.5) |
2.3 |
0.9 |
(2.3) |
(1.0) |
(1.0) |
|||
Intangible Amortisation |
|
|
(0.3) |
(0.9) |
(1.2) |
(2.2) |
(3.5) |
(3.7) |
(4.2) |
(4.2) |
(4.2) |
|||
Exceptionals |
|
|
(4.8) |
(2.0) |
(3.8) |
(4.2) |
(4.3) |
(9.3) |
(3.0) |
0.0 |
0.0 |
|||
Profit Before Tax (norm) |
|
|
14.0 |
18.5 |
20.7 |
24.4 |
30.9 |
27.1 |
28.0 |
31.1 |
32.7 |
|||
Profit Before Tax (company norm) |
|
|
15.8 |
20.4 |
22.9 |
26.3 |
32.6 |
28.8 |
29.7 |
32.8 |
34.4 |
|||
Profit Before Tax (statutory) |
|
|
11.0 |
15.4 |
11.5 |
13.5 |
25.4 |
15.0 |
18.5 |
25.9 |
27.5 |
|||
Tax |
|
|
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(6.0) |
(4.1) |
(4.9) |
(6.1) |
(6.5) |
|||
Other |
|
|
0.1 |
0.0 |
0.0 |
0.0 |
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 |
23.1 |
25.0 |
26.2 |
|||
Profit After Tax (statutory) |
|
|
8.1 |
13.0 |
8.5 |
9.9 |
19.4 |
10.9 |
13.6 |
19.8 |
21.0 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Avge Number of Shares Outstanding (m) |
|
59.2 |
60.6 |
61.1 |
68.0 |
80.2 |
80.3 |
80.7 |
80.8 |
80.8 |
||||
Avge Number of Shares Outstanding FD (m) |
|
61.5 |
62.2 |
63.1 |
69.8 |
81.1 |
81.0 |
81.0 |
81.1 |
81.1 |
||||
EPS FD - norm (p) |
|
|
18.0 |
24.7 |
24.4 |
26.8 |
29.6 |
26.1 |
26.9 |
29.9 |
31.4 |
|||
EPS FD - co norm (p) |
|
|
21.1 |
27.7 |
27.8 |
29.5 |
31.7 |
28.2 |
29.0 |
32.0 |
33.5 |
|||
EPS - statutory (p) |
|
|
13.2 |
20.8 |
13.4 |
14.1 |
23.9 |
13.5 |
16.7 |
24.4 |
25.9 |
|||
Dividend per share (p) |
|
|
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
3.1 |
5.5 |
8.0 |
9.0 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Gross Margin (%) |
|
|
N/A |
N/A |
36.7 |
36.5 |
37.5 |
36.4 |
N/A |
N/A |
N/A |
|||
EBITDA Margin (%) |
|
|
10.9 |
11.9 |
11.7 |
11.6 |
12.8 |
11.3 |
11.9 |
12.3 |
12.4 |
|||
Op Margin (before GW and except.) (%) |
|
8.2 |
9.5 |
9.3 |
9.4 |
10.8 |
9.4 |
10.3 |
10.6 |
10.7 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|||
Fixed Assets |
|
|
78.3 |
93.4 |
98.8 |
147.9 |
138.0 |
150.8 |
147.9 |
146.7 |
144.2 |
|||
Intangible Assets |
|
|
26.9 |
44.7 |
44.8 |
98.9 |
94.9 |
96.5 |
93.0 |
89.8 |
85.6 |
|||
Tangible Assets |
|
|
37.6 |
38.2 |
43.0 |
45.0 |
42.3 |
49.6 |
50.2 |
52.2 |
53.9 |
|||
Other Fixed Assets |
|
|
13.8 |
10.5 |
11.0 |
4.0 |
0.8 |
4.7 |
4.7 |
4.7 |
4.7 |
|||
Current Assets |
|
|
100.4 |
119.4 |
165.3 |
165.1 |
169.5 |
188.7 |
174.5 |
180.9 |
197.3 |
|||
Stocks |
|
|
52.2 |
60.1 |
70.3 |
74.9 |
79.5 |
78.9 |
66.4 |
73.0 |
77.3 |
|||
Debtors |
|
|
42.6 |
53.4 |
57.5 |
64.4 |
62.8 |
62.5 |
70.5 |
71.0 |
73.9 |
|||
Cash |
|
|
5.6 |
5.9 |
37.5 |
25.8 |
27.2 |
47.3 |
37.6 |
36.9 |
46.2 |
|||
Current Liabilities |
|
|
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(85.1) |
(79.2) |
(101.2) |
(95.1) |
(97.2) |
|||
Creditors |
|
|
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(81.3) |
(79.1) |
(101.2) |
(95.1) |
(97.2) |
|||
Short term borrowings |
|
|
(1.4) |
(2.8) |
(30.9) |
(8.5) |
(3.8) |
(0.1) |
0.0 |
0.0 |
0.0 |
|||
Long Term Liabilities |
|
|
(67.4) |
(97.6) |
(101.8) |
(118.6) |
(96.7) |
(155.9) |
(99.6) |
(97.2) |
(94.8) |
|||
Long term borrowings |
|
|
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(58.4) |
(83.6) |
(27.7) |
(27.7) |
(27.7) |
|||
Other long term liabilities |
|
|
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(38.3) |
(72.3) |
(71.9) |
(69.5) |
(67.1) |
|||
Net Assets |
|
|
51.3 |
47.6 |
56.6 |
104.6 |
125.7 |
104.4 |
121.5 |
135.2 |
149.5 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|||
Operating Cash Flow |
|
|
16.2 |
18.5 |
25.5 |
23.5 |
35.3 |
34.8 |
60.8 |
30.8 |
37.8 |
|||
Net Interest |
|
|
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(3.5) |
(3.3) |
(2.6) |
(2.5) |
|||
Tax |
|
|
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(4.6) |
(5.3) |
(3.0) |
(9.5) |
(7.1) |
|||
Capex |
|
|
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(5.5) |
(4.8) |
(4.0) |
(7.5) |
(7.5) |
|||
Acquisitions/disposals |
|
|
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.1) |
(9.2) |
0.0 |
(1.0) |
0.0 |
|||
Financing |
|
|
0.2 |
0.1 |
0.0 |
30.1 |
(0.9) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
|||
Dividends |
|
|
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.4) |
(7.0) |
0.0 |
(6.1) |
(6.7) |
|||
Net Cash Flow |
|
|
13.4 |
(17.1) |
7.9 |
(24.2) |
14.0 |
4.2 |
49.7 |
3.3 |
13.3 |
|||
Opening net debt/(cash) |
|
|
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(9.9) |
(9.2) |
|||
IFRS 16 Finance leases |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(3.8) |
(4.0) |
(4.0) |
(4.0) |
|||
Other |
|
|
(0.2) |
(1.2) |
1.4 |
0.3 |
(1.9) |
(1.8) |
0.6 |
0.0 |
0.0 |
|||
Closing net debt/(cash) |
|
|
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(9.9) |
(9.2) |
(18.5) |
|||
IFRS 16 lease liabilities |
|
|
|
|
|
|
|
(25.1) |
(26.6) |
(26.6) |
(26.6) |
|||
Source: Company accounts, Edison Investment Research
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On 15 April, Electra Private Equity (ELTA) announced the disposal of Sentinel – one of the company’s three remaining operating businesses – for £22.2m (58.1p per share), £11.3m higher than the asset’s carrying value on the balance sheet as at 30 September 2021. ELTA has been following a realisation strategy since October 2016, when it had a market cap of c £1.7bn, and has since returned c £2bn to shareholders. Since our 16 December 2020 initiation note, the shares have appreciated from a 22% discount to NAV to currently trading at a 4.1% premium.
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