Norcros — Record revenue and EBIT in FY22

Norcros (LSE: NXR)

Currency in GBP

Last close As at 26/01/2023

GBP2.12

0.50 (0.24%)

Market capitalisation

GBP189m

Research: Industrials

Norcros — Record revenue and EBIT in FY22

Strong H2 trading – especially in South Africa – causes us to raise our Norcros FY22 estimates to new record levels. Management anticipates further progress in FY23. We make only mix changes to our EBIT forecasts beyond FY22 at this stage. Ahead of the FY22 results, valuation multiples are already attractive in our view.

Industrials

Norcros

Record revenue and EBIT in FY22

FY22 year-end update

Construction & materials

21 April 2022

Price

260p

Market cap

£211m

ZAR19.2/£

Net cash* (£m) at end March 2022
*Pre-IFRS 16 basis

7

Shares in issue

80.8m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.4)

(20.5)

(14.8)

Rel (local)

(2.8)

(19.8)

(21.1)

52-week high/low

341p

240p

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

FY22 results announcement

9 June 2022

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Strong H2 trading – especially in South Africa – causes us to raise our Norcros FY22 estimates to new record levels. Management anticipates further progress in FY23. We make only mix changes to our EBIT forecasts beyond FY22 at this stage. Ahead of the FY22 results, valuation multiples are already attractive in our view.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/20

342.0

27.1

26.1

3.1

10.0

1.2

03/21

324.2

29.0

29.1

8.2

8.9

3.2

03/22e

396.2

36.0

34.0

9.0

7.6

3.5

03/23e

409.8

36.0

34.1

9.8

7.6

3.8

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.

Revenue growth accelerates in South Africa in H2

Compared to FY20, group revenues rose by 20.8% in FY22 on a constant FX, like-for-like basis (an uptick vs 18.4% in H122). Very strong H2 revenue growth in South Africa (+44% and +31% for the year on the same basis) drove this acceleration. UK revenues look to have been in line with our estimates, with c 15% LFL growth in H2 (slightly below in H1) or up c 14% for the year as a whole on a reported basis. We expect these patterns to reflect market share gains in South Africa arising from relatively robust supply chain management and some normalisation of UK RMI demand. We have nudged up our FY22 group revenue and EBIT estimates by 3–4%, largely to reflect South African progress. Beyond this and for the same reason, we have raised revenue expectations by similar amounts, leaving EBIT unchanged at this stage, tweaked slightly more in favour of South Africa than previously.

Low gearing, headroom for growth

Norcros ended FY22 with c £7m (pre IFRS 16) net cash. The company has put a new £130m revolving credit facility in place to the end of 2026 (with two-year extension plus a £70m accordion options) to replace a £120m facility (and £30m accordion) due to end later this year. Norcros clearly has good long-term funding visibility and plenty of headroom to accommodate M&A activity subject to opportunities arising. In other housekeeping matters, its latest DB pension scheme triennial review (March 2021 actuarial deficit c £36m) has resulted in a slightly higher annual contribution (c £3.8m vs c £3.4m pa, both CPI linked, now capped at 5%) and an onerous lease has been exited at a cash cost just above twice the £0.6m annual charge.

Valuation: Attractive multiples

After strongly outperforming the FTSE All-Share Index in 2021, Norcros’s share price has drifted down since late January and has now underperformed its broadly flat comparator by c 17% ytd in 2022. Consumer-oriented cyclical stocks have clearly fallen out of favour during this period but, with an FY23e P/E of 7.6x, EV/EBITDA (adjusted for pensions cash) of 4.6x and prospective 3.8% dividend yield, Norcros should be screening well for several investor types. Delivering management’s expectation of progress in FY23 would further enhance the attraction of the above multiples, even before considering potential M&A activity.

Exhibit 1: Financial summary

£m

2015

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

222.1

235.9

271.2

300.1

331.0

342.0

324.2

396.2

409.8

421.9

Cost of Sales

 

 

N/A

N/A

(171.7)

(190.4)

(206.8)

(217.5)

N/A

N/A

N/A

N/A

Gross Profit

 

 

N/A

N/A

99.5

109.7

124.2

124.5

N/A

N/A

N/A

N/A

EBITDA IFRS 16

 

 

24.3

28.0

31.6

34.7

42.2

38.8

39.9

46.0

46.8

48.5

Op Profit (before SBP)

 

 

18.3

22.5

25.2

28.3

35.6

32.2

34.7

41.3

41.3

42.7

Net Interest

 

 

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(1.6)

(1.5)

(0.6)

(0.7)

(0.6)

Other financial - norm

 

 

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.5)

(4.3)

(4.7)

(4.6)

(4.6)

Other financial

 

 

2.1

(0.2)

(4.2)

(4.5)

2.3

0.9

(3.0)

(0.4)

(0.4)

(0.4)

Intangible Amortisation

 

 

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(3.7)

(3.7)

(3.7)

(3.7)

(3.7)

Exceptionals

 

 

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(9.3)

(3.8)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

14.0

18.5

20.7

24.4

30.9

27.1

29.0

36.0

36.0

37.5

Profit Before Tax (company norm) 

 

15.8

20.4

22.9

26.3

32.6

28.8

30.6

37.7

37.6

39.1

Profit Before Tax (statutory) 

 

11.0

15.4

11.5

13.5

25.4

15.0

18.5

31.8

31.9

33.4

Tax

 

 

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(4.1)

(3.5)

(7.9)

(7.9)

(8.3)

Other

 

 

0.1

0.0

0.0

0.0

0.0

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

25.5

28.0

28.1

29.3

Profit After Tax (statutory)

 

 

8.1

13.0

8.5

9.9

19.4

10.9

15.0

23.9

24.0

25.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Avge Number of Shares Outstanding (m)

59.2

60.6

61.1

68.0

80.2

80.3

80.6

80.9

81.0

81.0

Avge Number of Shares Outstanding FD (m) 

61.5

62.2

63.1

69.8

81.1

81.0

80.8

82.4

82.5

82.5

EPS FD - norm (p)

 

 

18.0

24.7

24.4

26.8

29.6

26.1

29.1

34.0

34.1

35.5

EPS FD - co norm (p)

 

 

21.1

27.7

27.8

29.5

31.7

28.2

31.1

36.1

36.0

37.4

EPS - statutory (p)

 

 

13.2

20.8

13.4

14.1

23.9

13.5

18.6

29.0

29.0

30.5

Dividend per share (p)

 

 

5.6

6.6

7.2

7.8

8.4

3.1

8.2

9.0

9.8

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

36.7

36.5

37.5

36.4

N/A

N/A

N/A

N/A

EBITDA Margin (%)

 

 

10.9

11.9

11.7

11.6

12.8

11.3

12.3

11.6

11.4

11.5

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

8.2

9.5

9.3

9.4

10.8

9.4

10.7

10.4

10.1

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

78.3

93.4

98.8

147.9

138.0

150.8

141.2

140.9

140.7

140.3

Intangible Assets

 

 

26.9

44.7

44.8

98.9

94.9

96.5

93.6

89.9

86.2

82.5

Tangible Assets

 

 

37.6

38.2

43.0

45.0

42.3

49.6

47.6

51.1

54.6

57.8

Other Fixed Assets

 

 

13.8

10.5

11.0

4.0

0.8

4.7

0.0

0.0

0.0

0.0

Current Assets

 

 

100.4

119.4

165.3

165.1

169.5

188.7

171.0

201.8

218.1

235.8

Stocks

 

 

52.2

60.1

70.3

74.9

79.5

78.9

78.1

93.4

96.6

101.5

Debtors

 

 

42.6

53.4

57.5

64.4

62.8

62.5

64.6

75.6

79.3

83.5

Cash

 

 

5.6

5.9

37.5

25.8

27.2

47.3

28.3

32.8

42.2

50.8

Current Liabilities

 

 

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(79.2)

(104.1)

(111.8)

(114.7)

(116.0)

Creditors

 

 

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(79.1)

(104.1)

(111.8)

(114.7)

(116.0)

Short term borrowings

 

 

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

(0.1)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(155.9)

(59.7)

(55.5)

(52.2)

(50.9)

Long term borrowings

 

 

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(83.6)

(17.8)

(25.8)

(25.8)

(25.8)

Other long-term liabilities

 

 

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(72.3)

(41.9)

(29.7)

(26.4)

(25.1)

Net Assets

 

 

51.3

47.6

56.6

104.6

125.7

104.4

148.4

175.4

191.9

209.1

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

16.2

18.5

25.5

23.5

35.3

34.8

60.0

29.3

41.8

41.6

Net Interest

 

 

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(3.5)

(3.2)

(2.4)

(2.5)

(2.4)

Tax

 

 

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(5.3)

(3.5)

(7.5)

(8.7)

(8.8)

Capex

 

 

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(4.8)

(2.8)

(9.0)

(9.0)

(9.0)

Acquisitions/disposals

 

 

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.2)

0.0

0.0

0.0

0.0

Financing

 

 

0.2

0.1

0.0

30.1

(0.9)

(0.8)

0.3

(0.8)

(0.8)

(0.8)

Dividends

 

 

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

0.0

(9.1)

(7.4)

(8.0)

Net Cash Flow

 

 

13.4

(17.1)

7.9

(24.2)

14.0

4.2

50.8

0.5

13.4

12.6

Opening net debt/(cash)

 

 

27.4

14.2

32.5

23.2

47.1

35.0

36.4

(10.5)

(7.0)

(16.4)

IFRS16 Finance leases

 

 

0.0

0.0

0.0

0.0

0.0

(3.8)

(4.3)

(4.0)

(4.0)

(4.0)

Other

 

 

(0.2)

(1.2)

1.4

0.3

(1.9)

(1.8)

0.4

0.0

0.0

0.0

Closing net debt/(cash)

 

 

14.2

32.5

23.2

47.1

35.0

36.4

(10.5)

(7.0)

(16.4)

(25.0)

IFRS 16 lease liabilities

 

 

 

 

 

 

 

(25.1)

(24.2)

(23.7)

(23.7)

(23.7)

Source: Company accounts, Edison Investment Research

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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 £60,000 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.

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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 £60,000 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.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Carr’s Group — Engineering recovery sustained

Carr’s Group’s H122 results show it is coping well with commodity price volatility. The high oil prices are boosting demand for precision engineering services, supporting a recovery in the Engineering division. Management is confident that the FY22 performance will be in line with market expectations, so we leave our estimates broadly unchanged.

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