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GBP156m
Research: Industrials
FY19 ended in line with management’s expectations following a good H2 sales performance. Momentum here is to be supplemented by the post year-end acquisition of RAP Plumbing Supplies, which enhances earnings estimates by c 3%. Norcros is executing well against its strategy but the rating suggests that this is being overlooked by the market.
Written by
Toby Thorrington
Norcros |
Making good organic and acquisitive progress |
FY19 year-end update |
Construction & materials |
26 April 2019 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
FY19 ended in line with management’s expectations following a good H2 sales performance. Momentum here is to be supplemented by the post year-end acquisition of RAP Plumbing Supplies, which enhances earnings estimates by c 3%. Norcros is executing well against its strategy but the rating suggests that this is being overlooked by the market.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
271.2 |
20.7 |
24.4 |
7.2 |
8.3 |
3.6 |
03/18 |
300.1 |
24.4 |
26.8 |
7.8 |
7.6 |
3.9 |
03/19e |
331.0 |
31.1 |
29.5 |
8.4 |
6.9 |
4.1 |
03/20e |
355.2 |
34.0 |
32.0 |
9.0 |
6.3 |
4.4 |
Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and change in fair value of derivatives.
Solid close to FY19
Sales momentum in the UK and South Africa has been good in H2 leading to slightly better outturns than we had expected in both countries. In the UK (+13.6% actual, -0.2% LFL) Merlyn has implicitly achieved slightly higher revenue in H2 versus H1 while referencing ‘new listings’ back to the H1 results suggests that Abode also performed well in H2. The South African division (+3.7% actual, +7.5% in constant currency) saw underlying sales progress pick up slightly from already healthy H1 levels especially in the context of a sluggish local economy. With a degree of vertical integration, all three SA subsidiaries are likely to have contributed here. We note that group net debt ended the year slightly lower than we had previously modelled (ie £36m versus £40m); no further guidance was given on profitability and we have assumed in our adjusted FY19 estimates that the debt reduction was a working capital effect at this stage.
Earnings enhancing South African deal completes
We have increased our FY20 and FY21 earnings estimates by 3% following the post year end acquisition of RAP Plumbing Supplies (originally announced on 16 January) after the receipt of local regulatory clearances. This specialist plumbing products distributor increases the exposure to the trade channel, provides an additional potential outlet for other group products and complements Tile Africa’s retail presence. The initial c £9.7m consideration has been funded from cash generated by local operations and represents a c 5.2x EBITDA entry multiple.
Valuation: Delivering progress
The company’s share price is up c 7% and at the top end of its YTD trading range (though slightly lagging the FTSE All Share Index + c11%) after recently regaining December levels following a softer Q1. Overall, the rating is little changed from our last note and on a 6.9x P/E and 5.1x EV/EBITDA (adjusted for pensions cash) for the year that has just closed (or 6.3x and 4.7x, respectively, for FY20), management is still not being given the credit for the strategic progress and earnings development being delivered – with little assistance from underlying markets – in our view.
Exhibit 1: Financial summary
£'ms |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
||||||||||||||||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||||||||||||||||
PROFIT & LOSS |
|
|
|
|
|
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
||||||||||||||
Revenue |
|
|
200.3 |
210.7 |
218.7 |
222.1 |
235.9 |
271.2 |
300.1 |
331.0 |
355.2 |
365.3 |
||||||||||||||
Cost of Sales |
|
|
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 |
||||||||||||||
EBITDA |
|
|
18.6 |
19.9 |
22.9 |
24.3 |
28.0 |
31.6 |
34.7 |
42.1 |
45.9 |
47.9 |
||||||||||||||
Operating Profit (before SBP) |
|
|
12.3 |
13.7 |
17.0 |
18.3 |
22.5 |
25.2 |
28.3 |
35.3 |
38.9 |
40.7 |
||||||||||||||
Net Interest |
|
|
(1.4) |
(1.3) |
(1.5) |
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(1.7) |
(2.4) |
(2.3) |
||||||||||||||
Other financial - norm |
|
|
(0.9) |
(2.4) |
(2.6) |
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.5) |
(2.5) |
(2.5) |
||||||||||||||
Other financial |
|
|
0.6 |
(0.2) |
(5.2) |
2.1 |
(0.2) |
(4.2) |
(4.5) |
3.1 |
(1.2) |
(1.2) |
||||||||||||||
Intangible Amortisation |
|
|
0.0 |
0.0 |
(0.4) |
(0.3) |
(0.9) |
(1.2) |
(2.2) |
(3.5) |
(3.5) |
(3.5) |
||||||||||||||
Exceptionals |
|
|
(1.2) |
(4.4) |
(1.5) |
(4.8) |
(2.0) |
(3.8) |
(4.2) |
(1.0) |
(1.0) |
(1.0) |
||||||||||||||
Profit Before Tax (norm) |
|
|
10.0 |
10.0 |
12.9 |
14.0 |
18.5 |
20.7 |
24.4 |
31.1 |
34.0 |
35.9 |
||||||||||||||
Profit Before Tax (company norm) |
|
10.7 |
11.7 |
14.6 |
15.8 |
20.4 |
22.9 |
26.3 |
32.7 |
35.6 |
37.5 |
|||||||||||||||
Profit Before Tax (statutory) |
|
|
9.4 |
5.4 |
5.8 |
11.0 |
15.4 |
11.5 |
13.5 |
29.7 |
28.3 |
30.2 |
||||||||||||||
Tax |
|
|
0.0 |
0.2 |
4.3 |
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(7.0) |
(6.8) |
(7.2) |
||||||||||||||
Other |
|
|
0.0 |
0.0 |
(1.4) |
0.1 |
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 |
24.1 |
27.2 |
28.7 |
||||||||||||||
Profit After Tax (statutory) |
|
|
9.4 |
5.6 |
8.7 |
8.1 |
13.0 |
8.5 |
9.9 |
22.7 |
21.5 |
23.0 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Average Number of Shares Outstanding (m) |
|
57.7 |
58.0 |
58.4 |
59.2 |
60.6 |
61.1 |
68.0 |
80.5 |
81.2 |
81.9 |
|||||||||||||||
Average Number of Shares Outstanding FD (m) |
58.0 |
58.9 |
60.8 |
61.5 |
62.2 |
63.1 |
69.8 |
82.2 |
82.9 |
83.6 |
||||||||||||||||
EPS FD - normalised (p) |
|
|
17.9 |
15.8 |
22.8 |
18.0 |
24.7 |
24.4 |
26.8 |
29.5 |
32.0 |
33.5 |
||||||||||||||
EPS FD - company norm (p) |
|
|
19.2 |
18.7 |
27.9 |
21.1 |
27.7 |
27.8 |
29.5 |
31.5 |
33.9 |
35.4 |
||||||||||||||
EPS - statutory (p) |
|
|
16.2 |
9.5 |
14.3 |
13.2 |
19.7 |
9.8 |
11.2 |
27.8 |
25.1 |
26.7 |
||||||||||||||
Dividend per share (p) |
|
|
4.2 |
4.6 |
5.1 |
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
9.0 |
9.8 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross Margin (%) |
|
|
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 |
12.7 |
12.9 |
13.1 |
||||||||||||||
Operating Margin (before GW and except.) (%) |
6.1 |
6.5 |
7.8 |
8.2 |
9.5 |
9.3 |
9.4 |
10.7 |
10.9 |
11.2 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Fixed Assets |
|
|
80.0 |
86.7 |
80.0 |
78.3 |
93.4 |
98.8 |
147.9 |
139.4 |
148.9 |
152.6 |
||||||||||||||
Intangible Assets |
|
|
23.4 |
27.6 |
27.1 |
26.9 |
44.7 |
44.8 |
98.9 |
94.9 |
97.4 |
96.3 |
||||||||||||||
Tangible Assets |
|
|
44.8 |
43.5 |
36.9 |
37.6 |
38.2 |
43.0 |
45.0 |
43.8 |
50.8 |
55.6 |
||||||||||||||
Investments |
|
|
11.8 |
15.6 |
16.0 |
13.8 |
10.5 |
11.0 |
4.0 |
0.7 |
0.7 |
0.7 |
||||||||||||||
Current Assets |
|
|
89.7 |
104.6 |
102.2 |
100.4 |
119.4 |
165.3 |
165.1 |
180.8 |
195.4 |
204.4 |
||||||||||||||
Stocks |
|
|
45.5 |
52.8 |
50.2 |
52.2 |
60.1 |
70.3 |
74.9 |
72.1 |
83.4 |
79.8 |
||||||||||||||
Debtors |
|
|
34.5 |
36.3 |
48.1 |
42.6 |
53.4 |
57.5 |
64.4 |
69.3 |
76.0 |
75.2 |
||||||||||||||
Cash |
|
|
2.9 |
6.8 |
3.9 |
5.6 |
5.9 |
37.5 |
25.8 |
39.4 |
36.0 |
49.4 |
||||||||||||||
Current Liabilities |
|
|
(52.5) |
(54.0) |
(58.1) |
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(81.3) |
(92.3) |
(91.1) |
||||||||||||||
Creditors |
|
|
(52.1) |
(53.5) |
(57.3) |
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(81.3) |
(92.3) |
(91.1) |
||||||||||||||
Short term borrowings |
|
|
(0.4) |
(0.5) |
(0.8) |
(1.4) |
(2.8) |
(30.9) |
(8.5) |
0.0 |
0.0 |
0.0 |
||||||||||||||
Long Term Liabilities |
|
|
(46.1) |
(75.7) |
(58.6) |
(67.4) |
(97.6) |
(101.8) |
(118.6) |
(108.2) |
(106.7) |
(105.3) |
||||||||||||||
Long term borrowings |
|
|
(20.3) |
(37.0) |
(30.5) |
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(75.5) |
(75.5) |
(75.5) |
||||||||||||||
Other long term liabilities |
|
|
(25.8) |
(38.7) |
(28.1) |
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(32.7) |
(31.2) |
(29.8) |
||||||||||||||
Net Assets |
|
|
71.1 |
61.6 |
65.5 |
51.3 |
47.6 |
56.6 |
104.6 |
130.7 |
145.2 |
160.6 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating Cash Flow |
|
|
6.0 |
6.6 |
13.6 |
16.2 |
18.5 |
25.5 |
23.5 |
37.4 |
34.8 |
44.6 |
||||||||||||||
Net Interest |
|
|
(1.6) |
(1.3) |
(1.6) |
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(1.7) |
(2.4) |
(2.3) |
||||||||||||||
Tax |
|
|
(0.6) |
(1.0) |
(1.7) |
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(6.0) |
(7.0) |
(6.8) |
||||||||||||||
Capex |
|
|
(6.7) |
(4.2) |
(2.8) |
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(7.9) |
(12.0) |
(12.0) |
||||||||||||||
Acquisitions/disposals |
|
|
0.0 |
(10.6) |
0.1 |
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.0) |
(9.7) |
(2.4) |
||||||||||||||
Financing |
|
|
0.2 |
0.3 |
0.4 |
0.2 |
0.1 |
0.0 |
30.1 |
(1.1) |
0.0 |
0.0 |
||||||||||||||
Dividends |
|
|
(2.2) |
(2.5) |
(2.8) |
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.3) |
(7.0) |
(7.7) |
||||||||||||||
Net Cash Flow |
|
|
(4.9) |
(12.7) |
5.2 |
13.4 |
(17.1) |
7.9 |
(24.2) |
12.4 |
(3.4) |
13.5 |
||||||||||||||
Opening net debt/(cash) |
|
|
10.6 |
17.8 |
30.7 |
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
36.1 |
39.5 |
||||||||||||||
HP finance leases |
|
|
(0.8) |
(0.1) |
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 |
(1.4) |
0.0 |
0.0 |
||||||||||||||
Closing net debt/(cash) |
|
|
17.8 |
30.7 |
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
36.1 |
39.5 |
26.1 |
Source: Company, Edison Investment Research
|
|
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