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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
The Norcros H119 pre-close update reiterated management’s expectations for progress in FY19. Trading newsflow was similar to that reported in Q1 – with a good uplift to UK EBIT anticipated for H119 and a growing South African top-line – albeit with an implicitly slightly quieter second quarter. Brand presence, coupled with product and channel diversity, appears to be supporting ongoing progress in variable market conditions. Our estimates are unchanged and H119 results are scheduled for 15 November.
Written by
Toby Thorrington
Norcros |
Positive progress in H1 |
H119 pre close update |
Construction & materials |
18 October 2018 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
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The Norcros H119 pre-close update reiterated management’s expectations for progress in FY19. Trading newsflow was similar to that reported in Q1 – with a good uplift to UK EBIT anticipated for H119 and a growing South African top-line – albeit with an implicitly slightly quieter second quarter. Brand presence, coupled with product and channel diversity, appears to be supporting ongoing progress in variable market conditions. Our estimates are unchanged and H119 results are scheduled for 15 November.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
271.2 |
20.7 |
24.4 |
7.2 |
8.4 |
3.5 |
03/18 |
300.1 |
24.4 |
26.8 |
7.8 |
7.6 |
3.8 |
03/19e |
328.7 |
30.9 |
29.3 |
8.4 |
7.0 |
4.1 |
03/20e |
338.0 |
32.9 |
31.0 |
9.0 |
6.6 |
4.4 |
Note: *PBT and EPS FD are normalised, excluding amortisation of acquired intangibles, exceptional items and change in fair value of derivatives.
Good UK EBIT uplift anticipated for H119
A c £19m maiden H1 revenue contribution from Merlyn with above UK average divisional margins is likely to be a key trading highlight when the interim results are reported. While Johnson Tiles’ revenues will be lower y-o-y – reducing B&Q sales exposure – a recovery to profitability, following its restructuring should also provide a boost to EBIT. Apart from these specific features, organic revenue growth from the other UK portfolio companies collectively was c 2.5% in H1. Trade remains the most resilient sub-sector, especially in the residential new build supply chain while retail channels have been more challenging (eg in DIY with Homebase) and export markets variable.
Growing the South African top line
South Africa continues to deliver good revenue growth rates, achieving +7.1% progress in H1 in local currency (or +3.9% in sterling) all organically. Johnson Tiles SA has had a busy period enhancing processes to improve production yields and effectively raise capacity, while at the same time growing revenues including third-party product. Implicitly, the Tile Africa retail operations and TAL Adhesives must also be making some top line progress. We note that the rand has weakened against sterling since the beginning of the year; the H1 average rate was broadly in line with our modelled £/ZAR 17.5 assumption but we may need to revisit this when the interim results are reported if the current £/ZAR 18.7 level persists.
Valuation: Superior performance, inferior rating
The Norcros share price has outperformed the FTSE All-Share Index by c 20% ytd having risen by c 12% over this time period. Nevertheless, the company’s FY19e P/E and EV/EBITDA multiples (adjusted for pension recovery cash) are still only 7.0x and 5.1x respectively. A triennial DB pension scheme review is underway (based on a 1 April 2018 valuation). Norcros can comfortably meet its existing funding obligations and we consider that this is unlikely to change. Therefore, this should not be a drag on valuation.
Exhibit 1: Financial summary
£m |
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 |
328.7 |
338.0 |
345.7 |
|
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 |
42.3 |
44.5 |
46.1 |
|
Operating Profit (before SBP) |
|
|
12.3 |
13.7 |
17.0 |
18.3 |
22.5 |
25.2 |
28.3 |
35.6 |
37.6 |
39.2 |
|
Net Interest |
|
|
(1.4) |
(1.3) |
(1.5) |
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(2.0) |
(2.0) |
(1.9) |
|
Other financial - norm |
|
|
(0.9) |
(2.4) |
(2.6) |
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.7) |
(2.7) |
(2.7) |
|
Other financial |
|
|
0.6 |
(0.2) |
(5.2) |
2.1 |
(0.2) |
(4.2) |
(4.5) |
(1.4) |
(1.4) |
(1.4) |
|
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 |
30.9 |
32.9 |
34.6 |
|
Profit Before Tax (company norm) |
|
10.7 |
11.7 |
14.6 |
15.8 |
20.4 |
22.9 |
26.3 |
32.7 |
34.7 |
36.4 |
||
Profit Before Tax (FRS 3) |
|
|
9.4 |
5.4 |
5.8 |
11.0 |
15.4 |
11.5 |
13.5 |
25.0 |
27.0 |
28.7 |
|
Tax |
|
|
0.0 |
0.2 |
4.3 |
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(6.1) |
(6.5) |
(6.9) |
|
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 |
24.8 |
26.4 |
27.7 |
|
Profit After Tax (FRS 3) |
|
|
9.4 |
5.6 |
8.7 |
8.1 |
13.0 |
8.5 |
9.9 |
18.9 |
20.5 |
21.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
29.3 |
31.0 |
32.3 |
|
EPS FD - company normalised (p) |
|
|
19.2 |
18.7 |
27.9 |
21.1 |
27.7 |
27.8 |
29.5 |
31.5 |
33.1 |
34.5 |
|
EPS - FRS 3 (p) |
|
|
16.2 |
9.5 |
14.3 |
13.2 |
19.7 |
9.8 |
11.2 |
22.1 |
23.9 |
25.3 |
|
Dividend per share (p) |
|
|
4.2 |
4.6 |
5.1 |
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
9.0 |
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
12.9 |
13.2 |
13.3 |
|
Operating Margin (before GW and except.) (%) |
6.1 |
6.5 |
7.8 |
8.2 |
9.5 |
9.3 |
9.4 |
10.8 |
11.1 |
11.3 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
80.0 |
86.7 |
80.0 |
78.3 |
93.4 |
98.8 |
147.9 |
149.7 |
149.3 |
148.9 |
|
Intangible Assets |
|
|
23.4 |
27.6 |
27.1 |
26.9 |
44.7 |
44.8 |
98.9 |
97.4 |
93.9 |
90.4 |
|
Tangible Assets |
|
|
44.8 |
43.5 |
36.9 |
37.6 |
38.2 |
43.0 |
45.0 |
48.3 |
51.4 |
54.5 |
|
Investments |
|
|
11.8 |
15.6 |
16.0 |
13.8 |
10.5 |
11.0 |
4.0 |
4.0 |
4.0 |
4.0 |
|
Current Assets |
|
|
89.7 |
104.6 |
102.2 |
100.4 |
119.4 |
165.3 |
165.1 |
170.0 |
187.4 |
205.1 |
|
Stocks |
|
|
45.5 |
52.8 |
50.2 |
52.2 |
60.1 |
70.3 |
74.9 |
75.0 |
77.2 |
78.9 |
|
Debtors |
|
|
34.5 |
36.3 |
48.1 |
42.6 |
53.4 |
57.5 |
64.4 |
68.8 |
70.8 |
72.5 |
|
Cash |
|
|
2.9 |
6.8 |
3.9 |
5.6 |
5.9 |
37.5 |
25.8 |
26.1 |
39.4 |
53.7 |
|
Current Liabilities |
|
|
(52.5) |
(54.0) |
(58.1) |
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(85.2) |
(89.9) |
(94.4) |
|
Creditors |
|
|
(52.1) |
(53.5) |
(57.3) |
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(85.2) |
(89.9) |
(94.4) |
|
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) |
(117.5) |
(116.2) |
(115.0) |
|
Long term borrowings |
|
|
(20.3) |
(37.0) |
(30.5) |
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(64.4) |
(64.4) |
(64.4) |
|
Other long term liabilities |
|
|
(25.8) |
(38.7) |
(28.1) |
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(53.1) |
(51.8) |
(50.6) |
|
Net Assets |
|
|
71.1 |
61.6 |
65.5 |
51.3 |
47.6 |
56.6 |
104.6 |
117.0 |
130.5 |
144.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
6.0 |
6.6 |
13.6 |
16.2 |
18.5 |
25.5 |
23.5 |
35.3 |
38.4 |
40.4 |
|
Net Interest |
|
|
(1.6) |
(1.3) |
(1.6) |
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(2.0) |
(2.0) |
(1.9) |
|
Tax |
|
|
(0.6) |
(1.0) |
(1.7) |
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(6.0) |
(6.1) |
(6.5) |
|
Capex |
|
|
(6.7) |
(4.2) |
(2.8) |
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(10.0) |
(10.0) |
(10.0) |
|
Acquisitions/disposals |
|
|
0.0 |
(10.6) |
0.1 |
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.0) |
0.0 |
0.0 |
|
Financing |
|
|
0.2 |
0.3 |
0.4 |
0.2 |
0.1 |
0.0 |
30.1 |
0.0 |
0.0 |
0.0 |
|
Dividends |
|
|
(2.2) |
(2.5) |
(2.8) |
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.5) |
(7.0) |
(7.7) |
|
Net Cash Flow |
|
|
(4.9) |
(12.7) |
5.2 |
13.4 |
(17.1) |
7.9 |
(24.2) |
8.8 |
13.3 |
14.3 |
|
Opening net debt/(cash) |
|
|
10.6 |
17.8 |
30.7 |
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
38.3 |
25.0 |
|
HP finance leases initiated |
|
|
(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) |
1.5 |
0.3 |
0.0 |
0.0 |
0.0 |
|
Closing net debt/(cash) |
|
|
17.8 |
30.7 |
27.4 |
14.2 |
32.5 |
23.1 |
47.1 |
38.3 |
25.0 |
10.7 |
|
Source: Company data, Edison Investment Research
|
|
In a continuation of previous trends, GVC’s Q318 trading update has demonstrated strong growth and market share gains across all territories. Total net gaming revenues (NGR) were up 14%, driven by a 28% growth in online NGR. UK retail was only down 2%, helped by a strong FIFA World Cup. The integration of Ladbrokes is progressing well, although GVC has announced that Paul Bowtell (former Ladbrokes CFO) will resign in March 2019. Our estimates remain unchanged, but there is a £20-25m risk to our EBITDA forecasts, following an anticipated increase in remote gaming duty (RGD) at the government’s budget on 29 October. The stock has fallen 19% from recent highs and trades at 10.0x EV/EBITDA and 13.0x P/E for 2018e.
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