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Currency in GBP
Last close As at 26/05/2023
GBP1.75
▲ −1.75 (−0.99%)
Market capitalisation
GBP156m
Research: Industrials
An explicit and substantially positive update from Norcros points to a strong Q2 trading recovery after a COVID-19 affected Q1 and a significant reduction in net debt to modest levels. The company’s portfolio of businesses have demonstrated resilience and agility in being able to respond to these variable demand conditions and in doing so have probably enhanced the group’s competitive position. Our estimates remain suspended ahead of the H121 results announcement on 12 November.
Written by
Toby Thorrington
Norcros |
Plenty of positives in Q2 |
End H121 update |
Construction & materials |
19 October 2020 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
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An explicit and substantially positive update from Norcros points to a strong Q2 trading recovery after a COVID-19 affected Q1 and a significant reduction in net debt to modest levels. The company’s portfolio of businesses have demonstrated resilience and agility in being able to respond to these variable demand conditions and in doing so have probably enhanced the group’s competitive position. Our estimates remain suspended ahead of the H121 results announcement on 12 November.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/18 |
300.1 |
24.4 |
26.8 |
7.8 |
6.6 |
4.4 |
03/19 |
331.0 |
30.9 |
29.6 |
8.4 |
6.0 |
4.7 |
03/20 |
342.0 |
27.1 |
26.1 |
3.1 |
6.8 |
1.7 |
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.
Significant profit generation in Q2
Norcros provided indicative H121 figures for group revenue of c £135m (-17% l-f-l y-o-y on a constant currency (CC) basis), comprising UK c £94m (-16% l-f-l) and South Africa c £42m (-21% l-f-l CC) producing underlying EBIT of £12m (pre-IFRS 16 vs £17.1m in H120). One less trading week and adverse £/ZAR movements mean that the reported year-on-year revenue changes will be more like -25%, -19% and -37% respectively. Implicitly, virtually all of the profit was generated in Q2.
Positive Q2 revenue l-f-l in the UK and South Africa
UK and South African revenues rebounded to Q2 increases of +4% and +6% y-o-y (both l-f-l and in local FX) from a heavily COVID-19 affected Q1 which included equivalent reductions of 52% and 70% respectively in the first nine weeks of the year. UK operations with greater exposure to export markets (ie Triton, Merlyn & Vado) are cited as having had a particularly good Q2 and Norcros’s multi-channel distribution network – including both online and big box DIY retailers, which have both seen firm demand – will have put the UK operations in a good position. Given that the South African division’s own retail operations (Tile Africa) saw a strong recovery, a similar renovation driver appears to have been at work in that country. The company’s tile manufacturing operations (which only restarted in July in both the UK and South Africa) are very operationally geared so the year-on-year dent in group profitability at the half year stage is understandable.
Net debt reduced to very low levels
The flagged net debt reduction to c £8m (versus £41m a year earlier and £36m at the beginning of FY21) looks very impressive. Notwithstanding the improving Q2 sales trend, a large working capital inflow (rather than a traditional H1 outflow) must have occurred in H121. Further detail will be available with the H121 results. No FY20 final dividend payout, curtailed capex and some deferred tax benefit will also have contributed but a £28m favourable net debt movement is an outstanding performance given the trading environment. No H121 dividend is to be declared but the possibility of an FY21 final DPS has been raised, subject to the usual caveats.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
||||||
Revenue |
|
|
222.1 |
235.9 |
271.2 |
300.1 |
331.0 |
342.0 |
Cost of Sales |
|
|
N/A |
N/A |
(171.7) |
(190.4) |
(206.8) |
N/A |
Gross Profit |
|
|
N/A |
N/A |
99.5 |
109.7 |
124.2 |
N/A |
EBITDA IFRS 16 |
|
|
24.3 |
28.0 |
31.6 |
34.7 |
42.2 |
38.8 |
Op Profit (before SBP) |
|
|
18.3 |
22.5 |
25.2 |
28.3 |
35.6 |
32.2 |
Net Interest |
|
|
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(1.6) |
Other financial – norm |
|
|
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.9) |
(3.5) |
Other financial |
|
|
2.1 |
(0.2) |
(4.2) |
(4.5) |
2.3 |
0.9 |
Intangible Amortisation |
|
|
(0.3) |
(0.9) |
(1.2) |
(2.2) |
(3.5) |
(3.7) |
Exceptionals |
|
|
(4.8) |
(2.0) |
(3.8) |
(4.2) |
(4.3) |
(9.3) |
Profit Before Tax (norm) |
|
|
14.0 |
18.5 |
20.7 |
24.4 |
30.9 |
27.1 |
Profit Before Tax (company norm) |
|
15.8 |
20.4 |
22.9 |
26.3 |
32.6 |
28.8 |
|
Profit Before Tax (statutory) |
|
|
11.0 |
15.4 |
11.5 |
13.5 |
25.4 |
15.0 |
Tax |
|
|
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(6.0) |
(4.1) |
Other |
|
|
0.1 |
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 |
Profit After Tax (statutory) |
|
|
8.1 |
13.0 |
8.5 |
9.9 |
19.4 |
10.9 |
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
59.2 |
60.6 |
61.1 |
68.0 |
80.2 |
80.3 |
|
Average number of Shares Outstanding FD (m) |
|
61.5 |
62.2 |
63.1 |
69.8 |
81.1 |
81.0 |
|
EPS fully diluted - norm (p) |
|
|
18.0 |
24.7 |
24.4 |
26.8 |
29.6 |
26.1 |
EPS fully diluted - co norm (p) |
|
|
21.1 |
27.7 |
27.8 |
29.5 |
31.7 |
28.2 |
EPS - statutory (p) |
|
|
13.2 |
20.8 |
13.4 |
14.1 |
23.9 |
13.5 |
Dividend per share (p) |
|
|
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
3.1 |
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
N/A |
N/A |
36.7 |
36.5 |
37.5 |
N/A |
EBITDA Margin (%) |
|
|
10.9 |
11.9 |
11.7 |
11.6 |
12.8 |
11.3 |
Op Margin (before GW and except.) (%) |
|
8.2 |
9.5 |
9.3 |
9.4 |
10.8 |
9.4 |
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
78.3 |
93.4 |
98.8 |
147.9 |
138.0 |
150.8 |
Intangible Assets |
|
|
26.9 |
44.7 |
44.8 |
98.9 |
94.9 |
96.5 |
Tangible Assets |
|
|
37.6 |
38.2 |
43.0 |
45.0 |
42.3 |
49.6 |
Investments |
|
|
13.8 |
10.5 |
11.0 |
4.0 |
0.8 |
4.7 |
Current Assets |
|
|
100.4 |
119.4 |
165.3 |
165.1 |
169.5 |
188.7 |
Stocks |
|
|
52.2 |
60.1 |
70.3 |
74.9 |
79.5 |
78.9 |
Debtors |
|
|
42.6 |
53.4 |
57.5 |
64.4 |
62.8 |
62.5 |
Cash |
|
|
5.6 |
5.9 |
37.5 |
25.8 |
27.2 |
47.3 |
Current Liabilities |
|
|
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(85.1) |
(79.2) |
Creditors |
|
|
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(81.3) |
(79.1) |
Short term borrowings |
|
|
(1.4) |
(2.8) |
(30.9) |
(8.5) |
(3.8) |
(0.1) |
Long Term Liabilities |
|
|
(67.4) |
(97.6) |
(101.8) |
(118.6) |
(96.7) |
(155.9) |
Long term borrowings |
|
|
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(58.4) |
(83.6) |
Other long term liabilities |
|
|
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(38.3) |
(72.3) |
Net Assets |
|
|
51.3 |
47.6 |
56.6 |
104.6 |
125.7 |
104.4 |
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
16.2 |
18.5 |
25.5 |
23.5 |
35.3 |
34.8 |
Net Interest |
|
|
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(3.5) |
Tax |
|
|
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(4.6) |
(5.3) |
Capex |
|
|
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(5.5) |
(4.8) |
Acquisitions/disposals |
|
|
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.1) |
(9.2) |
Financing |
|
|
0.2 |
0.1 |
0.0 |
30.1 |
(0.9) |
(0.8) |
Dividends |
|
|
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.4) |
(7.0) |
Net Cash Flow |
|
|
13.4 |
(17.1) |
7.9 |
(24.2) |
14.0 |
4.2 |
Opening net debt/(cash) |
|
|
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
IFRS 16 finance leases |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(3.8) |
Other |
|
|
(0.2) |
(1.2) |
1.4 |
0.3 |
(1.9) |
(1.8) |
Closing net debt/(cash) |
|
|
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
IFRS 16 lease liabilities |
|
|
|
|
|
|
|
(25.1) |
Source: Company accounts, Edison Investment Research
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Research: TMT
Tinexta has announced three acquisitions that will lead to the creation of a fourth business unit, Cybersecurity. The acquisitions are consistent with the strategy of moving towards providing more digital services in high growth markets (9–10% pa in this case). As a result, they are expected to improve the group’s average organic revenue growth from c 4–5% to more than 8%, and lead to enhanced profit growth as margins expand following some initial dilution. While our forecasts are unchanged ahead of completion of the transactions, mostly in early FY21, in this note we discuss the implications for the forecasts and valuation. On a pro forma basis, EV/EBITDA is 12.8x in FY21e.
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