Norcros — Resilient business performance

Norcros (LSE: NXR)

Last close As at 20/05/2024

GBP2.18

3.00 (1.40%)

Market capitalisation

GBP198m

More on this equity

Research: Industrials

Norcros — Resilient business performance

Norcros has navigated COVID-19 driven market challenges well – noting positive Q2 revenue progress and net debt reduction – and is arguably a stronger business now despite the dent to earnings. Based on our reinstated estimates, we expect earnings to regain FY20 levels by FY23 and the company remains well placed to further strengthen its market positions both organically and via acquisitions.

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Industrials

Norcros

Resilient business performance

H121 results commentary

Construction & materials

21 December 2020

Price

190.6p

Market cap

£154m

ZAR21.8/£

Net debt (£m) at end September 2020

7.3

Shares in issue

81.6m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.6

28.1

(27.4)

Rel (local)

(0.7)

16.5

(17.6)

52-week high/low

305.0p

120.0p

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

FY21 year end

March

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Norcros is a research client of Edison Investment Research Limited

Norcros has navigated COVID-19 driven market challenges well – noting positive Q2 revenue progress and net debt reduction – and is arguably a stronger business now despite the dent to earnings. Based on our reinstated estimates, we expect earnings to regain FY20 levels by FY23 and the company remains well placed to further strengthen its market positions both organically and via acquisitions.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/19

331.0

30.9

29.6

8.4

6.4

4.4

03/20

342.0

27.1

26.1

3.1

7.3

1.6

03/21e

289.0

19.5

18.8

3.6

10.1

1.9

03/22e

312.0

24.3

23.4

6.5

8.1

3.4

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.

Mitigating COVID-19’s impact and generating cash

H121 revenues were in line with the pre-close update (at £135.3m, -17.3% y-o-y constant FX) and underlying EBIT came through slightly stronger than we expected (£12.8m, -26.4%). UK mix effects contributed to this and while South African trading conditions were more challenging (local FX sales -21% or -37% in sterling and EBIT c 40% lower year-on-year), a positive contribution was a respectable outturn in our opinion. Cash flow was a particular highlight of H1 trading with a c £24m reduction in core net debt to just c £7m with a significant working capital inflow. Also, gross borrowings were substantially lower in the period-end balance sheet as COVID-19 trading risks eased. As expected, no H1 dividend was declared.

Estimates regain FY20 PBT levels by FY23

Our reinstated earnings estimates are c 40% and c 30% lower than previously (withdrawn in March) for FY21 and FY22. Taking a cautious view on the rate of recovery from COVID-19 affected FY21, we expect a broadly similar group trading outturn by FY23 to that delivered in FY20. We factor in revenue and margin progress for both divisions beyond the current year and a profit mix moving slightly more in favour of the UK, offsetting slower South African EBIT recovery (including slightly more adverse current FX rates). Greater clarity on post-COVID-19 rates of economic recovery in Norcros’s main markets will allow us to better assess how end-market consumer sentiment and underlying structural drivers are likely to develop.

Valuation: Fundamentally strong platform

The Norcros share price has recovered well from lows earlier in the year, but remains some way off January highs (being 120p and 305p, respectively). On our reinstated estimates, the near-term ratings (FY21 P/E 10.1x and EV/EBITDA adjusted for pensions cash 6.2x) do not look stretched despite the dent to earnings this year and the likelihood, in our view, that a final dividend will be declared. Their FY23 equivalents (7.1x and 4.4x, respectively) do not appear to reflect the company’s strong market positions, above market growth rates and low financial risk that could be leveraged to support further growth through acquisitions.

Exhibit 1: Financial summary

£'ms

2015

2016

2017

2018

2019

2020

2021e

2022e

2023e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

222.1

235.9

271.2

300.1

331.0

342.0

289.0

312.0

326.3

Cost of Sales

 

 

N/A

N/A

(171.7)

(190.4)

(206.8)

(217.5)

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

EBITDA IFRS16

 

 

24.3

28.0

31.6

34.7

42.2

38.8

30.7

35.3

39.1

Op Profit (before SBP)

 

 

18.3

22.5

25.2

28.3

35.6

32.2

25.4

29.8

33.3

Net Interest

 

 

(1.2)

(0.9)

(0.9)

(1.1)

(1.8)

(1.6)

(1.9)

(1.5)

(1.4)

Other financial - norm

 

 

(3.1)

(3.1)

(3.6)

(2.8)

(2.9)

(3.5)

(4.0)

(4.0)

(4.0)

Other financial

 

 

2.1

(0.2)

(4.2)

(4.5)

2.3

0.9

(2.3)

(1.0)

(1.0)

Intangible Amortisation

 

 

(0.3)

(0.9)

(1.2)

(2.2)

(3.5)

(3.7)

(4.2)

(4.2)

(4.2)

Exceptionals

 

 

(4.8)

(2.0)

(3.8)

(4.2)

(4.3)

(9.3)

(3.0)

0.0

0.0

Profit Before Tax (norm)

 

 

14.0

18.5

20.7

24.4

30.9

27.1

19.5

24.3

27.9

Profit Before Tax (company norm)

 

15.8

20.4

22.9

26.3

32.6

28.8

21.2

26.0

29.6

Profit Before Tax (statutory)

 

 

11.0

15.4

11.5

13.5

25.4

15.0

10.0

19.1

22.7

Tax

 

 

(3.0)

(2.4)

(3.0)

(3.6)

(6.0)

(4.1)

(3.0)

(4.7)

(5.4)

Other

 

 

0.1

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

16.5

19.7

22.5

Profit After Tax (statutory)

 

 

8.1

13.0

8.5

9.9

19.4

10.9

7.0

14.5

17.3

 

 

 

 

 

 

 

 

 

 

 

 

Avge Number of Shares Outstanding (m)

 

59.2

60.6

61.1

68.0

80.2

80.3

80.6

80.6

80.6

Avge Number of Shares Outstanding FD (m)

 

61.5

62.2

63.1

69.8

81.1

81.0

81.0

81.0

81.0

EPS FD - norm (p)

 

 

18.0

24.7

24.4

26.8

29.6

26.1

18.8

23.4

26.9

EPS FD - co norm (p)

 

 

21.1

27.7

27.8

29.5

31.7

28.2

20.9

25.5

29.0

EPS - statutory (p)

 

 

13.2

20.8

13.4

14.1

23.9

13.5

8.6

17.9

21.3

Dividend per share (p)

 

 

5.6

6.6

7.2

7.8

8.4

3.1

3.6

6.5

7.6

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

36.7

36.5

37.5

36.4

N/A

N/A

N/A

EBITDA Margin (%)

 

 

10.9

11.9

11.7

11.6

12.8

11.3

10.6

11.3

12.0

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

 

8.2

9.5

9.3

9.4

10.8

9.4

8.8

9.6

10.2

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

78.3

93.4

98.8

147.9

138.0

150.8

148.9

147.7

145.2

Intangible Assets

 

 

26.9

44.7

44.8

98.9

94.9

96.5

93.0

89.8

85.6

Tangible Assets

 

 

37.6

38.2

43.0

45.0

42.3

49.6

51.2

53.2

54.9

Investments

 

 

13.8

10.5

11.0

4.0

0.8

4.7

4.7

4.7

4.7

Current Assets

 

 

100.4

119.4

165.3

165.1

169.5

188.7

159.8

172.8

187.7

Stocks

 

 

52.2

60.1

70.3

74.9

79.5

78.9

75.7

78.7

82.3

Debtors

 

 

42.6

53.4

57.5

64.4

62.8

62.5

60.2

64.5

67.1

Cash

 

 

5.6

5.9

37.5

25.8

27.2

47.3

23.9

29.6

38.3

Current Liabilities

 

 

(60.0)

(67.6)

(105.7)

(89.8)

(85.1)

(79.2)

(84.1)

(88.5)

(92.1)

Creditors

 

 

(58.6)

(64.8)

(74.8)

(81.3)

(81.3)

(79.1)

(84.1)

(88.5)

(92.1)

Short term borrowings

 

 

(1.4)

(2.8)

(30.9)

(8.5)

(3.8)

(0.1)

0.0

0.0

0.0

Long Term Liabilities

 

 

(67.4)

(97.6)

(101.8)

(118.6)

(96.7)

(155.9)

(109.6)

(107.2)

(104.8)

Long term borrowings

 

 

(18.4)

(35.6)

(29.8)

(64.4)

(58.4)

(83.6)

(37.7)

(37.7)

(37.7)

Other long term liabilities

 

 

(49.0)

(62.0)

(72.0)

(54.2)

(38.3)

(72.3)

(71.9)

(69.5)

(67.1)

Net Assets

 

 

51.3

47.6

56.6

104.6

125.7

104.4

114.9

124.7

136.1

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

16.2

18.5

25.5

23.5

35.3

34.8

38.5

30.8

35.2

Net Interest

 

 

(1.3)

(0.9)

(0.9)

(1.1)

(1.8)

(3.5)

(3.7)

(3.3)

(3.2)

Tax

 

 

(0.5)

(1.0)

(1.9)

(4.9)

(4.6)

(5.3)

(3.0)

(3.9)

(5.0)

Capex

 

 

(1.4)

(6.6)

(8.0)

(7.7)

(5.5)

(4.8)

(5.0)

(7.5)

(7.5)

Acquisitions/disposals

 

 

3.3

(23.6)

(2.7)

(59.1)

(2.1)

(9.2)

0.0

(1.0)

0.0

Financing

 

 

0.2

0.1

0.0

30.1

(0.9)

(0.8)

(0.8)

(0.8)

(0.8)

Dividends

 

 

(3.1)

(3.6)

(4.2)

(5.0)

(6.4)

(7.0)

0.0

(4.7)

(5.8)

Net Cash Flow

 

 

13.4

(17.1)

7.9

(24.2)

14.0

4.2

26.0

9.7

12.8

Opening net debt/(cash)

 

 

27.4

14.2

32.5

23.2

47.1

35.0

36.4

13.8

8.1

IFRS16 Finance leases

 

 

0.0

0.0

0.0

0.0

0.0

(3.8)

(4.0)

(4.0)

(4.0)

Other

 

 

(0.2)

(1.2)

1.4

0.3

(1.9)

(1.8)

0.6

0.0

0.0

Closing net debt/(cash)

 

 

14.2

32.5

23.2

47.1

35.0

36.4

13.8

8.1

(0.6)

IFRS16 lease liabilities

 

 

 

 

 

 

 

(25.1)

(26.6)

(26.6)

(26.6)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

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 £49,500 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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 2020 Edison Investment Research Limited (Edison).

Australia

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.

New Zealand

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

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 £49,500 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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 2020 Edison Investment Research Limited (Edison).

Australia

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.

New Zealand

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Energy & Resources

SDX Energy — In an enviable position in the sector

At its recent capital markets day, SDX Energy reiterated 2020 production guidance and highlighted its strong cash generation, with c 90% of post-tax operating cash flows derived from fixed-price gas contracts. Management presented its 2021/22 plan of activities, targeting three wells in Egypt with potential to add 179bcf of recoverable reserves from a 233bcf exploration portfolio under assessment, and at least four exploration wells in Morocco. With increasing FCF, capital is likely to be directed to expansion of reserves but, absent this, offers the alternative option of returning capital to shareholders. Our mid-case RENAV remains in line with our last valuation at 45.0p/share.

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