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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
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.
Written by
Toby Thorrington
Norcros |
Resilient business performance |
H121 results commentary |
Construction & materials |
21 December 2020 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
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Research: Oil & Gas
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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