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Norcros — Maintaining forward progress

Norcros (LSE: NXR)

Currency in GBP

Last close As at 26/05/2023

GBP1.75

▲ −1.75 (−0.99%)

Market capitalisation

GBP156m

More on this equity

Research: Industrials

Norcros — Maintaining forward progress

Sustained UK progress is the headline message from the H120 update in our view. Low single-digit growth here is not eye-catching but is certainly better than underlying markets. Management expectations and our own estimates are unchanged and consistent delivery against these benchmarks should be reflected in an improved rating in our view.

Analyst avatar placeholder

Industrials

Norcros

Maintaining forward progress

H120 pre-close update

Construction & materials

18 October 2019

Price

223p

Market cap

£179m

ZAR19.0/£

Net debt (£m) at end March 2019

35

Shares in issue

80.2m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.6)

2.1

7.8

Rel (local)

(1.3)

5.7

5.3

52-week high/low

243.0p

185.5p

Business description

Norcros is a leading supplier of showers, enclosures and trays, tiles, taps and related fittings and accessories for bathrooms, kitchens, washrooms and other commercial environments. It has operations in the UK and South Africa, with some export activity from both countries.

Next event

H120 results

14 November

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Sustained UK progress is the headline message from the H120 update in our view. Low single-digit growth here is not eye-catching but is certainly better than underlying markets. Management expectations and our own estimates are unchanged and consistent delivery against these benchmarks should be reflected in an improved rating in our view.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

300.1

24.4

26.8

7.8

8.3

3.5

03/19

331.0

30.9

29.6

8.4

7.5

3.8

03/20e

359.9

34.0

32.0

9.0

7.0

4.0

03/21e

368.4

35.9

33.5

9.8

6.7

4.4

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and change in fair value of derivatives.

Outperforming challenging markets

In underlying terms, H1 revenues grew by 1.3% y-o-y in the UK operations and were flat in South Africa (compared with -0.4% and +0.8%, respectively, at the end of Q1). The progress in the UK was all organic and comprised domestic growth of 3.4%, including market share gains arising from both new products and existing listings, together with some benefit from wider supply chain challenges. While the general UK market tone is soft, the Norcros multi-channel proposition (leading brands, breadth of product portfolio, service and financial strength) continues to outperform. After a relatively weak start to the year, UK export performance improved in Q2 although it still currently lags prior year levels. In South Africa, domestic conditions remain challenging, especially in commercial and export markets. Hence, at face value, comparable underlying revenue to H119 looks creditable. House of Plumbing was acquired at the beginning of the year for c £10m; initial integration steps have now been completed and its revenue contribution in the first six months was in the order of ZAR225m/£12m. Business development planning is underway here and future aspirations may become more apparent as the year progresses. Lastly, the flagged period end net debt position of c £42m implies a small underlying cash inflow in H1 (prior to the acquisition), compared to a small outflow in H119.

Valuation: Credit due for relative performance

The shares having hit a year high of 243p earlier this month, recent gains have subsequently retraced; the stock is currently c 17% ahead ytd and up c 4% on a one-year view, slightly ahead of the FTSE All-Share Index over the same period. Norcros is navigating its markets carefully and gaining share in the process, although it is receiving little credit for doing so in our view, measured by its rating. The P/E and EV/EBITDA (adjusted for pensions cash) are slightly improved from our last note but still sit at just 7.0x and 5.1x, respectively, for the current year and with a prospective 4% dividend yield.

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016

2017

2018

2019

2020e

2021e

2022e

Year end March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

200.3

210.7

218.7

222.1

235.9

271.2

300.1

331.0

359.9

368.4

377.4

Cost of Sales

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Gross Profit

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA

 

 

18.6

19.9

22.9

24.3

28.0

31.6

34.7

42.2

46.3

48.3

49.9

Operating Profit (pre SBP)

 

 

12.3

13.7

17.0

18.3

22.5

25.2

28.3

35.6

39.3

41.1

42.7

Net Interest

 

 

(1.4)

(1.3)

(1.5)

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(2.3)

(2.2)

(2.3)

Other financial - norm

 

 

(0.9)

(2.4)

(2.6)

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.0)

(3.0)

(3.0)

Other financial

 

 

0.6

(0.2)

(5.2)

2.1

(0.2)

(4.2)

(4.5)

2.3

(1.3)

(1.3)

(1.3)

Intangible Amortisation

 

 

0.0

0.0

(0.4)

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(4.0)

(4.0)

(4.0)

Exceptionals

 

 

(1.2)

(4.4)

(1.5)

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(1.0)

0.0

0.0

Profit Before Tax (norm)

 

 

10.0

10.0

12.9

14.0

18.5

20.7

24.4

30.9

34.0

35.9

37.4

Profit Before Tax (co norm)

 

10.7

11.7

14.6

15.8

20.4

22.9

26.3

32.6

35.7

37.6

39.1

Profit Before Tax (statutory)

 

 

9.4

5.4

5.8

11.0

15.4

11.5

13.5

25.4

27.7

30.6

32.1

Tax

 

 

0.0

0.2

4.3

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(6.8)

(7.2)

(7.5)

Other

 

 

0.0

0.0

(1.4)

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

 

 

10.4

9.3

13.9

11.1

16.1

17.7

20.8

24.9

27.2

28.7

29.9

Profit After Tax (statutory)

 

 

9.4

5.6

8.7

8.1

13.0

8.5

9.9

19.4

20.9

23.4

24.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding (m) 

57.7

58.0

58.4

59.2

60.6

61.1

68.0

80.2

81.2

81.9

82.6

Average number of shares outstanding FD (m)

58.0

58.9

60.8

61.5

62.2

63.1

69.8

81.1

82.9

83.6

84.3

EPS FD - normalised (p)

 

 

17.9

15.8

22.8

18.0

24.7

24.4

26.8

29.6

32.0

33.5

34.6

EPS FD - co normalised (p)

 

 

19.2

18.7

27.9

21.1

27.7

27.8

29.5

31.7

34.1

35.6

36.6

EPS - statutory (p)

 

 

16.2

9.5

14.3

13.2

19.7

9.8

11.2

22.9

24.4

27.2

28.3

Dividend per share (p)

 

 

4.2

4.6

5.1

5.6

6.6

7.2

7.8

8.4

9.0

9.8

10.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

 

 

9.3

9.4

10.5

10.9

11.9

11.7

11.6

12.8

12.9

13.1

13.2

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

6.1

6.5

7.8

8.2

9.5

9.3

9.4

10.8

10.9

11.2

11.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

80.0

86.7

80.0

78.3

93.4

98.8

147.9

138.0

145.0

146.2

145.0

Intangible Assets

 

 

23.4

27.6

27.1

26.9

44.7

44.8

98.9

94.9

96.9

95.3

91.3

Tangible Assets

 

 

44.8

43.5

36.9

37.6

38.2

43.0

45.0

42.3

47.3

50.1

52.9

Investments

 

 

11.8

15.6

16.0

13.8

10.5

11.0

4.0

0.8

0.8

0.8

0.8

Current Assets

 

 

89.7

104.6

102.2

100.4

119.4

165.3

165.1

169.5

185.4

194.8

213.5

Stocks

 

 

45.5

52.8

50.2

52.2

60.1

70.3

74.9

79.5

92.4

88.6

90.8

Debtors

 

 

34.5

36.3

48.1

42.6

53.4

57.5

64.4

62.8

70.8

69.5

71.2

Cash

 

 

2.9

6.8

3.9

5.6

5.9

37.5

25.8

27.2

22.2

36.7

51.5

Current Liabilities

 

 

(52.5)

(54.0)

(58.1)

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(96.6)

(94.1)

(97.6)

Creditors

 

 

(52.1)

(53.5)

(57.3)

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(96.6)

(94.1)

(97.6)

Short term borrowings

 

 

(0.4)

(0.5)

(0.8)

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

0.0

0.0

0.0

Long Term Liabilities

 

 

(46.1)

(75.7)

(58.6)

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(94.8)

(92.7)

(90.7)

Long term borrowings

 

 

(20.3)

(37.0)

(30.5)

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(58.4)

(58.4)

(58.4)

Other long term liabilities

 

 

(25.8)

(38.7)

(28.1)

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(36.4)

(34.3)

(32.3)

Net Assets

 

 

71.1

61.6

65.5

51.3

47.6

56.6

104.6

125.7

139.0

154.2

170.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6.0

6.6

13.6

16.2

18.5

25.5

23.5

35.3

34.8

44.6

43.0

Net Interest

 

 

(1.6)

(1.3)

(1.6)

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(2.3)

(2.2)

(2.1)

Tax

 

 

(0.6)

(1.0)

(1.7)

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(6.0)

(6.8)

(7.2)

Capex

 

 

(6.7)

(4.2)

(2.8)

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(10.0)

(10.0)

(10.0)

Acquisitions/disposals

 

 

0.0

(10.6)

0.1

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.7)

(2.4)

0.0

Financing

 

 

0.2

0.3

0.4

0.2

0.1

0.0

30.1

(0.9)

(1.0)

(1.0)

(1.0)

Dividends

 

 

(2.2)

(2.5)

(2.8)

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

(7.7)

(7.9)

Net Cash Flow

 

 

(4.9)

(12.7)

5.2

13.4

(17.1)

7.9

(24.2)

14.0

(1.2)

14.6

14.8

Opening net debt/(cash)

10.6

17.8

30.7

27.4

14.2

32.5

23.2

47.1

35.0

36.2

21.7

Finance leases initiated

 

 

(0.8)

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

(1.5)

(0.1)

(1.9)

(0.2)

(1.2)

1.4

0.3

(1.9)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

17.8

30.7

27.4

14.2

32.5

23.2

47.1

35.0

36.2

21.7

6.9

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by Norcros and prepared and issued by Edison, in consideration of a fee payable by Norcros. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Murray Income Trust (MUT) has significantly outperformed its FTSE All-Share Index benchmark and the majority of peers over the past year, in large part due to its focus on high-quality companies with strong balance sheets, which have held up better than others in recent bouts of market volatility. Manager Charles Luke takes a long-term approach, giving time for company fundamentals to win through and reducing trading costs. The trust has an increased focus on mid-cap and smaller companies (now c 30% of the portfolio) and also has the ability to invest up to 20% (currently c 11%) overseas. The manager highlights MUT’s attractive income characteristics, with a 4.0% yield, above-average dividend growth and dividend security, and a 46-year record of increasing its annual payouts.

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