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Last close As at 26/05/2023
GBP1.75
▲ −1.75 (−0.99%)
Market capitalisation
GBP156m
Norcros |
Strategic and financial progress |
Acquisition & FY16 update |
Construction & materials |
22 April 2016 |
Share price performance
Business description
Next event
Analysts
Norcros is a research client of Edison Investment Research Limited |
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FY16 was a year of strategic and financial progress for Norcros, with improved profit contributions from both reporting regions and two acquisitions completed. The company’s rating has yet to reflect this momentum in our view.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/14 |
218.7 |
12.9 |
22.8 |
5.1 |
7.8 |
2.9 |
03/15 |
222.1 |
14.0 |
18.0 |
5.6 |
9.9 |
3.2 |
03/16e |
240.6 |
17.5 |
21.1 |
6.4 |
8.4 |
3.6 |
03/17e |
263.6 |
19.5 |
23.2 |
6.8 |
7.7 |
3.8 |
Note: *PBT and EPS FD are normalised, excluding intangible amortisation and exceptional items. EPS/DPS are adjusted for a one-to-10 share consolidation (30 September 2015).
Abode offers good strategic fit
Having acquired Croydex in June, Norcros announced its second FY16 deal at the year end. Abode Home Products designs, sources and distributes high-quality kitchen taps, sinks and bathroom taps with a customer proposition based on product innovation and service. We understand that its customer profile primarily comprises a mix of trade and specialist retail – supplied with both branded and own-label products – with limited DIY and merchant channel exposure. Strategically, Abode fits well with Vado, extending the kitchen-oriented range, bringing complementary distribution relationships and joint sourcing potential. In the year to June 2015, Abode generated £9.9m of revenue and EBITDA of £0.6m. Norcros paid an initial cash-free/debt-free consideration of £3.5m. (Terms also include deferred consideration of up to £0.9m – payable in FY19 – and a three-year management incentive plan of up to £0.4m, both dependent on financial performance.)
FY16 EBIT to exceed market expectations
A year-end trading update stated that underlying group EBIT is likely to be “marginally ahead” of market expectations. Regional revenues appear to have been slightly weaker in the UK overall (a stronger Croydex contribution, offset by retail and export exposures), while South Africa has been slightly better (with all three businesses progressing well) against our own estimates. Net debt (including Abode) of c £33m is in line with our expectations. Lastly, the March 2015 pension triennial review has resulted in a small increase in cash recovery payments. In our view, this provides increased clarity and certainty in this area and Norcros’s free cash flow credentials remain strong. In context, the c £2.5m FY17 total payment is less than 10% of our expected FY17 EBITDA.
Valuation: Scope for a positive re-rating
We have raised FY17 and FY18 PBT and EPS expectations by c 3% to reflect the Abode acquisition, with no other changes to existing estimates. On this basis, the FY17 valuation multiples become P/E 7.7x, EV/EBITDA (adjusted for pensions recovery cash) 4.4x, with a prospective 3.8% yield. With demonstrable financial and strategic progress and reiterated management revenue aspirations well above our FY18 projection, there is clear scope for a positive re-rating in our view.
Exhibit 1: Financial summary
£ms |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||||
PROFIT & LOSS |
|
|
|
|
|
|
Continuing |
Continuing |
Continuing |
Continuing |
||
Revenue |
|
|
196.1 |
200.3 |
210.7 |
218.7 |
222.1 |
240.6 |
263.6 |
275.7 |
||
Cost of Sales |
|
|
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 |
||
EBITDA |
|
|
18.2 |
18.6 |
19.9 |
22.9 |
24.3 |
28.3 |
30.9 |
32.8 |
||
Operating Profit (before SBP) |
|
|
11.6 |
12.3 |
13.7 |
17.0 |
18.3 |
21.9 |
24.3 |
26.2 |
||
Net Interest |
|
|
(1.5) |
(1.4) |
(1.3) |
(1.5) |
(1.2) |
(1.3) |
(1.7) |
(1.5) |
||
Other financial - norm |
|
|
(1.1) |
(0.9) |
(2.4) |
(2.6) |
(3.1) |
(3.1) |
(3.1) |
(3.1) |
||
Other financial |
|
|
(0.4) |
0.6 |
(0.2) |
(5.2) |
2.1 |
(2.5) |
(1.5) |
(1.5) |
||
Intangible Amortisation |
|
|
0.0 |
0.0 |
0.0 |
(0.4) |
(0.3) |
(0.9) |
(1.3) |
(1.3) |
||
Exceptionals |
|
|
(1.1) |
(1.2) |
(4.4) |
(1.5) |
(4.8) |
(1.7) |
(1.0) |
(1.0) |
||
Profit Before Tax (norm) |
|
|
9.0 |
10.0 |
10.0 |
12.9 |
14.0 |
17.5 |
19.5 |
21.6 |
||
Profit Before Tax (company norm) |
|
10.2 |
10.7 |
11.7 |
14.6 |
15.8 |
19.3 |
21.3 |
23.4 |
|||
Profit Before Tax (FRS 3) |
|
|
7.5 |
9.4 |
5.4 |
5.8 |
11.0 |
12.4 |
15.7 |
17.8 |
||
Tax |
|
|
(0.8) |
0.0 |
0.2 |
4.3 |
(3.0) |
(3.7) |
(4.2) |
(4.7) |
||
Other |
|
|
0.0 |
0.0 |
0.0 |
(1.4) |
0.1 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
|
|
8.2 |
10.4 |
9.3 |
13.9 |
11.1 |
13.8 |
15.3 |
16.9 |
||
Profit After Tax (FRS 3) |
|
|
6.7 |
9.4 |
5.6 |
8.7 |
8.1 |
8.7 |
11.5 |
13.1 |
||
|
|
|
|
|
|
|
|
|
|
|
||
Average Number of Shares Outstanding (m) |
|
57.7 |
57.7 |
58.0 |
58.4 |
59.2 |
60.6 |
61.3 |
62.0 |
|||
Average Number of Shares Outstanding FD (m) |
57.7 |
58.0 |
58.9 |
60.8 |
61.5 |
62.3 |
63.0 |
63.7 |
||||
EPS FD - normalised (p) |
|
|
14.1 |
17.9 |
15.8 |
22.8 |
18.0 |
21.1 |
23.2 |
25.4 |
||
EPS FD - company normalised (p) |
|
|
16.3 |
19.2 |
18.7 |
27.9 |
21.1 |
24.0 |
26.1 |
28.2 |
||
EPS - FRS 3 (p) |
|
|
11.6 |
16.2 |
9.5 |
14.3 |
13.2 |
12.9 |
17.2 |
19.5 |
||
Dividend per share (p) |
|
|
3.6 |
4.2 |
4.6 |
5.1 |
5.6 |
6.4 |
6.8 |
7.3 |
||
|
|
|
|
|
|
|
|
|
|
|
||
Gross Margin (%) |
|
|
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
|
|
9.3 |
9.3 |
9.4 |
10.5 |
10.9 |
11.8 |
11.7 |
11.9 |
||
Operating Margin (before GW and except.) (%) |
5.9 |
6.1 |
6.5 |
7.8 |
8.2 |
9.1 |
9.2 |
9.5 |
||||
|
|
|
|
|
|
|
|
|
|
|
||
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
||
Fixed Assets |
|
|
80.7 |
80.0 |
86.7 |
80.0 |
78.3 |
94.2 |
97.2 |
97.9 |
||
Intangible Assets |
|
|
23.9 |
23.4 |
27.6 |
27.1 |
26.9 |
42.9 |
44.3 |
43.3 |
||
Tangible Assets |
|
|
49.1 |
44.8 |
43.5 |
36.9 |
37.6 |
40.1 |
41.7 |
43.4 |
||
Investments |
|
|
7.7 |
11.8 |
15.6 |
16.0 |
13.8 |
11.2 |
11.2 |
11.2 |
||
Current Assets |
|
|
94.4 |
89.7 |
104.6 |
102.2 |
100.4 |
110.3 |
126.9 |
141.3 |
||
Stocks |
|
|
42.3 |
45.5 |
52.8 |
50.2 |
52.2 |
58.5 |
65.9 |
68.9 |
||
Debtors |
|
|
36.4 |
34.5 |
36.3 |
35.5 |
37.5 |
44.1 |
49.4 |
51.7 |
||
Cash |
|
|
7.7 |
2.9 |
6.8 |
3.9 |
5.6 |
3.7 |
7.6 |
16.7 |
||
Current Liabilities |
|
|
(56.4) |
(52.5) |
(54.0) |
(58.1) |
(60.0) |
(67.3) |
(80.0) |
(87.0) |
||
Creditors |
|
|
(53.3) |
(52.1) |
(53.5) |
(57.3) |
(58.6) |
(67.3) |
(80.0) |
(87.0) |
||
Short term borrowings |
|
|
(3.1) |
(0.4) |
(0.5) |
(0.8) |
(1.4) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(39.3) |
(46.1) |
(75.7) |
(58.6) |
(67.4) |
(83.1) |
(82.1) |
(81.0) |
||
Long term borrowings |
|
|
(15.2) |
(20.3) |
(37.0) |
(30.5) |
(18.4) |
(35.6) |
(35.6) |
(35.6) |
||
Other long term liabilities |
|
|
(24.1) |
(25.8) |
(38.7) |
(28.1) |
(49.0) |
(47.5) |
(46.5) |
(45.4) |
||
Net Assets |
|
|
79.4 |
71.1 |
61.6 |
65.5 |
51.3 |
54.2 |
62.0 |
71.2 |
||
|
|
|
|
|
|
|
|
|
|
|
||
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
||
Operating Cash Flow |
|
|
10.8 |
6.0 |
6.6 |
13.6 |
16.2 |
22.8 |
22.9 |
26.9 |
||
Net Interest |
|
|
(1.0) |
(1.6) |
(1.3) |
(1.6) |
(1.3) |
(1.3) |
(1.7) |
(1.5) |
||
Tax |
|
|
(0.6) |
(0.6) |
(1.0) |
(1.7) |
(0.5) |
(1.8) |
(2.7) |
(3.7) |
||
Capex |
|
|
(6.3) |
(6.7) |
(4.2) |
(2.8) |
(1.4) |
(8.5) |
(8.3) |
(8.3) |
||
Acquisitions/disposals |
|
|
4.4 |
0.0 |
(10.6) |
0.1 |
3.3 |
(23.6) |
(2.7) |
(0.4) |
||
Financing |
|
|
0.0 |
0.2 |
0.3 |
0.4 |
0.2 |
0.0 |
0.0 |
0.0 |
||
Dividends |
|
|
(0.7) |
(2.2) |
(2.5) |
(2.8) |
(3.1) |
(3.5) |
(3.7) |
(4.0) |
||
Net Cash Flow |
|
|
6.6 |
(4.9) |
(12.7) |
5.2 |
13.4 |
(15.9) |
3.9 |
9.2 |
||
Opening net debt/(cash) |
|
|
15.9 |
10.6 |
17.8 |
30.7 |
27.4 |
14.2 |
31.9 |
28.0 |
||
HP finance leases initiated |
|
|
0.0 |
(0.8) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
|
|
(1.3) |
(1.5) |
(0.1) |
(1.9) |
(0.2) |
(1.8) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
10.6 |
17.8 |
30.7 |
27.4 |
14.2 |
31.9 |
28.0 |
18.9 |
||
Source: Company accounts, Edison Investment Research. Note: Edison norm includes IAS19R pension administration costs and amortisation costs of raising finance (c £1.7m and £0.1m respectively from FY15 onwards). Exceptional items in 2015 and 2016 relate to the resolution of legacy property items and acquisition activity. Historic per share values have been restated to reflect the 1 for 10 share consolidation undertaken in September 2015.
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