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—
Research: Industrials
The coronavirus outbreak has led to widespread temporary closures across the UK building materials supply chain and Epwin has taken similar steps. We have brought our FY19 estimates in line with management’s update comments. Clearly, there will be downward pressure on trading for a currently indeterminate period and, it is important to note that estimates beyond FY19 are yet to be adjusted for COVID-19 impacts.
Written by
Epwin Group |
Responding to COVID-19 |
Year-end and initial COVID-19 update |
Construction & materials |
3 April 2020 |
Share price performance
Business description
Next events
Analyst
Epwin Group is a research client of Edison Investment Research Limited |
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The coronavirus outbreak has led to widespread temporary closures across the UK building materials supply chain and Epwin has taken similar steps. We have brought our FY19 estimates in line with management’s update comments. Clearly, there will be downward pressure on trading for a currently indeterminate period and, it is important to note that estimates beyond FY19 are yet to be adjusted for COVID-19 impacts.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17** |
292.8 |
22.4 |
13.4 |
6.7 |
4.6 |
11.0 |
12/18 |
281.1 |
16.5 |
9.8 |
4.9 |
6.2 |
8.0 |
12/19e |
282.0 |
16.5 |
9.3 |
1.8 |
6.6 |
3.0 |
12/20e |
288.8 |
17.2 |
9.8 |
5.3 |
6.2 |
8.7 |
Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals, with estimates on an IFRS 16 basis. **Restated excluding discontinued operations.FY19 dividend represents the H1 payment only, no final dividend is expected.
Taking actions to mitigate coronavirus impact
Consistent with industry customers, peers and the wider UK economy, Epwin has instituted a temporary shutdown period across its manufacturing, fabrication and distribution facilities (including its substantially complete Telford 2 newbuild warehouse hub). Similarly, steps to manage costs and cash are being taken including use of government financial support programmes, deferred capex and forgoing an FY19 final dividend payment. For the FY19 year, the company expects to report underlying pre-IFRS 16 operating profit of £19.1m and period end core net debt (pre-IFRS 16) of £16.4m.
We have trimmed our FY19 PBT (by c 6%), bringing our estimates in line with the above statement. We were slightly ahead of consensus in all three estimate years ahead of the COVID-19 outbreak. While group trading was slightly ahead of management expectations for the first two months of the new financial year, understandably no formal forward-looking guidance is being provided for FY20. Our forecasts beyond FY19 incorporate H119 commentary and IFRS 16-related changes only. Clearly there will be downward pressure on trading for a currently indeterminate period and we will update them for market developments as soon as it is practicably sensible to do so.
Management reminds us that it has bank funding in place (ie a £65m RCF to June 2022 and an annual overdraft facility) that provides significant headroom in the current economic climate. Foregoing the FY19 final dividend retains c £4.6m cash within the business, while lower capex and tax payments could save a similar amount. Epwin is also unlikely to require the normal seasonal working capital build as things stand. Note that COGS is substantially comprised of variable, materials-related costs providing significant cost flex-down potential even before taking into account any mitigating actions to reduce other opex line items.
The benefits of previous strategic improvement actions (streamlining and investing in core businesses and adding complementary ones) may not now come to the fore in FY20 but they have nonetheless strengthened Epwin’s ability to progress once trading conditions normalise.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2017 |
2018 |
2019e |
2020e |
2021e |
||||||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||||||
PROFIT & LOSS |
|
|
|
|
|
|
|
Restated |
|
|
|
|
||||
Revenue |
|
|
255.3 |
259.5 |
256.0 |
293.2 |
298.3 |
292.8 |
281.1 |
282.0 |
288.8 |
293.6 |
||||
Cost of Sales |
|
|
(185.8) |
(186.7) |
(178.6) |
(200.6) |
(207.5) |
(201.5) |
(196.4) |
(193.5) |
(198.1) |
(201.4) |
||||
Gross Profit |
|
|
69.5 |
72.8 |
77.4 |
92.6 |
90.8 |
91.3 |
84.8 |
88.5 |
90.7 |
92.2 |
||||
EBITDA (pre IFRS 16) |
|
|
21.4 |
24.5 |
25.6 |
33.3 |
30.3 |
32.1 |
26.7 |
27.4 |
28.5 |
29.4 |
||||
Operating profit (pre IFRS 16 norm) |
|
15.6 |
19.5 |
20.1 |
25.6 |
22.3 |
24.2 |
18.7 |
19.1 |
19.8 |
20.4 |
|||||
Operating profit (IFRS 16 norm) |
|
|
|
|
|
|
|
20.9 |
21.6 |
22.2 |
||||||
Intangible Amortisation |
|
|
(1.7) |
(1.7) |
(0.0) |
(1.1) |
(1.1) |
(1.1) |
(1.2) |
(0.2) |
(0.2) |
(0.2) |
||||
Exceptionals |
|
|
(5.1) |
2.3 |
(0.6) |
(0.2) |
(7.4) |
(7.4) |
(2.0) |
(0.5) |
0.0 |
0.0 |
||||
Other |
|
|
0.0 |
(0.8) |
(0.4) |
(0.3) |
(0.6) |
(0.6) |
(0.7) |
(0.7) |
(0.7) |
(0.7) |
||||
Operating Profit |
|
|
8.8 |
19.3 |
19.1 |
24.0 |
13.2 |
15.1 |
14.8 |
19.5 |
20.7 |
21.3 |
||||
Net Interest |
|
|
(1.0) |
(0.7) |
(0.5) |
(1.0) |
(1.2) |
(1.2) |
(1.5) |
(3.7) |
(3.7) |
(3.6) |
||||
Profit Before Tax (IFRS 16 norm) |
|
14.6 |
18.0 |
19.2 |
24.3 |
20.5 |
22.4 |
16.5 |
16.450 |
17.150 |
17.850 |
|||||
Profit Before Tax (statutory) |
|
|
7.9 |
18.6 |
18.6 |
23.0 |
12.0 |
13.9 |
13.3 |
15.8 |
17.0 |
17.7 |
||||
Tax |
|
|
(1.3) |
(3.5) |
(3.3) |
(3.4) |
(1.9) |
(2.3) |
(2.5) |
(3.1) |
(3.1) |
(3.2) |
||||
Profit After Tax (norm) |
|
|
12.4 |
14.4 |
15.9 |
20.9 |
17.6 |
19.1 |
14.0 |
13.3 |
14.1 |
14.6 |
||||
Profit After Tax (statutory) |
|
|
5.1 |
15.1 |
15.3 |
19.6 |
10.1 |
11.6 |
10.8 |
12.6 |
13.9 |
14.4 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average number of shares outstanding (m) |
122.3 |
128.0 |
135.2 |
141.5 |
142.6 |
142.6 |
142.9 |
142.9 |
142.9 |
142.9 |
||||||
EPS - norm (p) – IFRS 16 from 2019 |
|
10.1 |
11.2 |
11.8 |
14.8 |
12.4 |
13.4 |
9.8 |
9.3 |
9.8 |
10.2 |
|||||
EPS - norm (p) FD – IFRS 16 from 2019 |
|
|
11.2 |
11.7 |
14.7 |
12.4 |
13.4 |
9.8 |
9.3 |
9.8 |
10.2 |
|||||
EPS - statutory (p) |
|
|
4.2 |
11.8 |
11.3 |
13.8 |
7.1 |
7.1 |
4.1 |
8.8 |
9.7 |
10.1 |
||||
Dividend per share (p) |
|
|
0.0 |
4.2 |
6.4 |
6.6 |
6.7 |
6.7 |
4.9 |
1.8 |
5.3 |
5.5 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Margin (%) |
|
|
27.2 |
28.1 |
30.2 |
31.6 |
30.4 |
31.2 |
30.2 |
31.4 |
31.4 |
31.4 |
||||
EBITDA pre IFRS 16 Margin (%) |
|
|
8.4 |
9.4 |
10.0 |
11.3 |
10.2 |
11.0 |
9.5 |
9.7 |
9.9 |
10.0 |
||||
Optg margin pre IFRS 16 norm (%) |
6.1 |
7.5 |
7.9 |
8.7 |
7.5 |
8.3 |
6.7 |
6.8 |
6.8 |
6.9 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed Assets |
|
|
54.7 |
53.8 |
93.5 |
108.5 |
106.2 |
|
111.7 |
107.6 |
107.6 |
107.4 |
||||
Intangible Assets |
|
|
26.4 |
24.7 |
59.7 |
70.2 |
69.6 |
|
73.7 |
76.0 |
75.8 |
75.6 |
||||
Tangible Assets |
|
|
25.1 |
26.2 |
33.1 |
37.9 |
36.0 |
|
37.3 |
30.0 |
30.2 |
30.2 |
||||
Other |
|
|
3.2 |
2.9 |
0.7 |
0.4 |
0.6 |
|
0.7 |
1.6 |
1.6 |
1.6 |
||||
Current Assets |
|
|
62.1 |
62.3 |
87.2 |
82.6 |
82.2 |
|
75.7 |
93.8 |
101.6 |
110.0 |
||||
Stocks |
|
|
21.7 |
22.4 |
23.6 |
28.2 |
29.6 |
|
29.2 |
29.8 |
31.7 |
32.2 |
||||
Debtors |
|
|
40.1 |
37.6 |
41.5 |
41.4 |
45.3 |
|
40.4 |
42.7 |
44.9 |
46.2 |
||||
Cash |
|
|
0.3 |
2.3 |
22.1 |
13.0 |
7.3 |
|
6.1 |
21.3 |
25.1 |
31.6 |
||||
Current Liabilities |
|
|
(54.5) |
(49.0) |
(68.8) |
(79.2) |
(79.2) |
|
(69.3) |
(60.2) |
(56.9) |
(58.3) |
||||
Creditors |
|
|
(51.5) |
(48.6) |
(53.2) |
(62.9) |
(58.2) |
|
(63.7) |
(60.2) |
(56.9) |
(58.3) |
||||
Short term borrowings |
|
|
(3.0) |
(0.4) |
(15.6) |
(16.3) |
(21.0) |
|
(5.6) |
0.0 |
0.0 |
0.0 |
||||
Long Term Liabilities |
|
|
(25.7) |
(4.3) |
(31.8) |
(21.0) |
(15.5) |
|
(28.1) |
(39.1) |
(39.1) |
(39.1) |
||||
Long term borrowings |
|
|
(16.0) |
(0.8) |
(20.9) |
(17.3) |
(11.4) |
|
(25.3) |
(37.7) |
(37.7) |
(37.7) |
||||
Other long term liabilities |
|
|
(9.7) |
(3.5) |
(10.9) |
(3.7) |
(4.1) |
|
(2.8) |
(1.4) |
(1.4) |
(1.4) |
||||
Net Assets |
|
|
36.6 |
62.8 |
80.1 |
90.9 |
93.7 |
|
90.0 |
102.1 |
113.3 |
120.1 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Cash Flow |
|
|
12.1 |
19.8 |
23.8 |
30.8 |
19.9 |
18.1 |
25.8 |
36.2 |
35.0 |
38.4 |
||||
Net Interest |
|
|
(0.9) |
(0.7) |
(0.5) |
(1.0) |
(1.0) |
(1.0) |
(1.3) |
(1.5) |
(1.5) |
(1.4) |
||||
Tax |
|
|
(0.9) |
(1.7) |
(2.3) |
(3.8) |
(2.7) |
(2.7) |
(2.6) |
(2.6) |
(7.0) |
(2.7) |
||||
Capex |
|
|
(4.9) |
(5.6) |
(9.0) |
(12.7) |
(7.1) |
(5.3) |
(12.5) |
(1.5) |
(9.3) |
(9.3) |
||||
Acquisitions/disposals |
|
|
(0.2) |
0.0 |
(20.9) |
(10.2) |
(3.9) |
(3.9) |
0.0 |
(2.2) |
0.0 |
0.0 |
||||
Financing |
|
|
0.0 |
10.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(0.0) |
(10.8) |
(10.8) |
(10.8) |
||||
Dividends |
|
|
0.0 |
(1.9) |
(6.7) |
(9.1) |
(9.5) |
(9.5) |
(8.8) |
(7.1) |
(2.6) |
(7.6) |
||||
Net Cash Flow |
|
|
5.2 |
19.9 |
(15.6) |
(6.1) |
(4.3) |
(4.3) |
0.6 |
10.5 |
3.8 |
6.5 |
||||
Opening net debt/(cash) |
|
|
23.2 |
18.7 |
(1.1) |
14.4 |
20.6 |
20.6 |
25.1 |
24.8 |
16.4 |
12.6 |
||||
Finance leases initiated |
|
|
(0.5) |
(0.3) |
0.4 |
1.9 |
(1.4) |
(1.4) |
(1.1) |
(0.7) |
0.0 |
0.0 |
||||
Other |
|
|
(0.1) |
0.2 |
(0.3) |
(2.1) |
1.2 |
1.2 |
0.8 |
(1.5) |
0.0 |
0.0 |
||||
Closing net debt/(cash) |
|
|
18.6 |
(1.1) |
14.4 |
20.6 |
25.1 |
25.1 |
24.8 |
16.4 |
12.6 |
6.1 |
||||
IFRS 16 Leases |
|
|
|
|
|
|
|
|
|
55.5 |
55.5 |
55.5 |
||||
Source: Company, Edison Investment Research. Note that estimates beyond FY20 do not take into account potential COVID-19 impacts.
|
|
Research: TMT
XP Power’s Q1 trading update confirmed that revenues increased 4% y o y/q o q and the Chinese facility has returned to normal staffing levels. Strong demand, mainly from healthcare customers, saw a 25% q o q increase in orders and a Q1 book-to-bill of 1.49x. Despite strong Q1 demand, the level of uncertainty surrounding both supply and demand for the rest of the year has caused XP to cancel its previously proposed Q419 dividend in order to preserve cash. We maintain our revenue forecasts, but factor in higher costs in FY20 and remove our Q419 and Q120 dividend estimates.