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Research: Industrials
Norcros’s FY24 results highlight its resilience in the face of tough markets, but we continue to believe that the outlook is improving in both of its core markets, the UK and South Africa. Despite the improving outlook we have maintained our revenue and profit forecasts and 251p/share valuation post the results, with the company trading on an undemanding P/E rating of 6.6x. However, it is worth highlighting the scale of the opportunity on offer to Norcros, which was illustrated at the recent capital markets day.
Norcros |
Robust performance, improving outlook |
FY24 preliminary results |
Construction and materials |
14 June 2024 |
Share price performance
Business description
Next events
Analyst
Norcros is a research client of Edison Investment Research Limited |
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Norcros’s FY24 results highlight its resilience in the face of tough markets, but we continue to believe that the outlook is improving in both of its core markets, the UK and South Africa. Despite the improving outlook we have maintained our revenue and profit forecasts and 251p/share valuation post the results, with the company trading on an undemanding P/E rating of 6.6x. However, it is worth highlighting the scale of the opportunity on offer to Norcros, which was illustrated at the recent capital markets day.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/23 |
441.0 |
41.8 |
37.4 |
10.2 |
5.8 |
4.7 |
03/24 |
392.1 |
36.4 |
32.1 |
10.2 |
6.8 |
4.7 |
03/25e |
364.7 |
37.9 |
33.1 |
10.4 |
6.6 |
4.8 |
03/26e |
369.4 |
39.1 |
34.1 |
10.5 |
6.4 |
4.8 |
Note: *PBT and EPS are on an underlying reported basis, excluding exceptional items. EPS is diluted.
Solid results in tough markets
Although FY24 revenue was down 11.1% to £392.1m at the headline level, after adjusting for the acquisition of Grant Westfield and the closure of Norcros Adhesives, like-for-like revenue on a constant currency basis was down only 6%. Underlying operating profit was down 8.7% at £43.2m, with underlying PBT at £36.4m. Diluted underlying EPS was down 14.2% to 32.1p. Despite the decline, the board is recommending an unchanged total dividend of 10.2p, which implies dividend cover in excess of three times. Net debt (excluding leases) declined from £49.9m to £37.3m due to the net operating cash flow of £42.5m, including a small positive inflow from working capital management and a lack of M&A activity in the period.
Record UK profits; South Africa suffers power issues
In the UK, despite a 4.7% decline in revenue on a reported basis to £281.9m, the business reported a record level of operating profit of £38.4m, which implies a margin of 13.6%, up from 12.6%. Excluding Johnson Tiles, which was sold in May, Norcros achieved a margin of c 15%, in line with the group target. In South Africa, activity was negatively affected by the power outages that hit the whole economy. On a constant currency like-for-like basis, revenue fell 12.3% to £110.2m, and operating profit fell from £10.1m to £4.8m, which implies a margin of 4.4%, down from 7.0% in FY23. The energy market has since stabilised and recent elections appear to have gone smoothly, implying a more optimistic outlook.
Valuation: Unchanged at 251p, implies c 20% upside
Following the results, we have maintained our revenue and profit estimates. Our P/E based valuation implies a value of 243p/share, based on our diluted underlying FY25 EPS estimate of 33.1p, while our dividend discount model (DDM) implies a value of 260p/share. If we take the average of the two, we arrive at 251p, implying c 20% upside. Norcros is trading on a forward P/E of 6.6x in FY25e, still below the historical average. As the strategy gains momentum, a higher multiple could potentially be justified.
Exhibit 1: Financial summary
£'m |
2022 |
2023 |
2024 |
2025e |
2026e |
||
31-March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
396.3 |
441.0 |
392.1 |
364.7 |
369.4 |
Cost of Sales |
(396.3) |
(441.0) |
(392.1) |
(364.7) |
(369.4) |
||
Gross Profit |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA |
|
|
47.0 |
52.3 |
47.5 |
49.8 |
50.4 |
Normalised operating profit |
|
|
41.8 |
47.3 |
43.2 |
43.7 |
44.2 |
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating profit - Underlying |
41.8 |
47.3 |
43.2 |
43.7 |
44.2 |
||
IAS 19R Pension scheme expenses |
(1.7) |
(1.6) |
(1.3) |
(1.7) |
(1.7) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Impairment and acquisition related costs |
(4.8) |
(8.4) |
(4.3) |
(8.2) |
(8.2) |
||
Other |
0.9 |
(9.8) |
2.3 |
0.0 |
0.0 |
||
Reported operating profit |
36.2 |
27.5 |
39.9 |
33.8 |
34.3 |
||
Net Interest |
(3.2) |
(5.8) |
(7.3) |
(7.2) |
(6.5) |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
38.6 |
41.5 |
35.9 |
36.5 |
37.7 |
PBT - 'Underlying' |
|
|
39.3 |
41.8 |
36.4 |
37.9 |
39.1 |
Profit Before Tax (reported) |
|
|
33.0 |
21.7 |
32.6 |
26.6 |
27.8 |
Reported tax |
(7.3) |
(4.9) |
(5.8) |
(8.2) |
(8.6) |
||
Profit After Tax (norm) |
31.3 |
36.6 |
30.1 |
28.2 |
29.1 |
||
Profit After Tax (Underlying) |
31.5 |
36.9 |
30.6 |
29.6 |
30.5 |
||
Profit After Tax (reported) |
25.2 |
16.8 |
26.8 |
18.3 |
19.2 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
31.3 |
36.6 |
30.1 |
28.2 |
29.1 |
||
Net income (Underlying) |
31.5 |
36.9 |
30.6 |
29.6 |
30.5 |
||
Net income (reported) |
25.2 |
16.8 |
26.8 |
18.3 |
19.2 |
||
Basic average number of shares outstanding (m) |
81 |
88 |
89 |
89 |
89 |
||
EPS - basic normalised (p) |
|
|
38.70 |
41.53 |
33.82 |
31.82 |
32.79 |
EPS - diluted normalised (p) |
|
|
37.99 |
40.89 |
33.51 |
31.53 |
32.49 |
EPS - Diluted, 'underlying' |
|
|
38.23 |
37.43 |
32.07 |
33.09 |
34.06 |
EPS - basic reported (p) |
|
|
31.15 |
19.06 |
30.11 |
20.65 |
21.63 |
Dividend (p) |
10.00 |
10.20 |
10.20 |
10.40 |
10.50 |
||
Revenue growth (%) |
22.2 |
11.3 |
(-11.1) |
(-7.0) |
1.3 |
||
Gross Margin (%) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
11.9 |
11.9 |
12.1 |
13.7 |
13.6 |
||
Normalised Operating Margin |
10.5 |
10.7 |
11.0 |
12.0 |
12.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
158.8 |
226.8 |
224.5 |
213.9 |
202.2 |
Intangible Assets |
90.3 |
167.1 |
161.2 |
153.6 |
146.0 |
||
Tangible Assets |
29.0 |
24.8 |
28.1 |
31.4 |
33.6 |
||
Investments & other |
39.5 |
34.9 |
35.2 |
28.9 |
22.6 |
||
Current Assets |
|
|
200.7 |
216.2 |
200.8 |
198.6 |
204.4 |
Stocks |
100.6 |
103.9 |
97.4 |
98.5 |
103.4 |
||
Debtors |
71.1 |
83.3 |
72.6 |
69.3 |
70.2 |
||
Cash & cash equivalents |
27.4 |
29.0 |
30.8 |
30.8 |
30.8 |
||
Other |
1.6 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(110.8) |
(112.7) |
(99.2) |
(92.2) |
(93.2) |
Creditors |
(102.4) |
(99.2) |
(89.1) |
(82.1) |
(83.1) |
||
Tax and social security |
(2.7) |
(0.9) |
(2.5) |
(2.5) |
(2.5) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(5.7) |
(12.6) |
(7.6) |
(7.6) |
(7.6) |
||
Long Term Liabilities |
|
|
(48.4) |
(119.9) |
(103.7) |
(85.1) |
(64.8) |
Long term borrowings |
(18.8) |
(78.9) |
(68.1) |
(58.1) |
(46.4) |
||
Other long term liabilities |
(29.6) |
(41.0) |
(35.6) |
(27.0) |
(18.4) |
||
Net Assets |
|
|
200.3 |
210.4 |
222.4 |
235.1 |
248.6 |
Shareholders' equity |
|
|
200.3 |
210.4 |
222.4 |
235.1 |
248.6 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
47.0 |
52.3 |
47.5 |
49.8 |
50.4 |
||
Working capital |
(23.6) |
(13.3) |
3.3 |
(4.8) |
(4.8) |
||
Exceptional & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Tax |
(6.5) |
(7.7) |
(5.6) |
(8.2) |
(8.6) |
||
Other |
(0.9) |
(2.5) |
(2.7) |
(0.9) |
(0.9) |
||
Net operating cash flow |
|
|
16.0 |
28.8 |
42.5 |
35.9 |
36.0 |
Capex |
(5.4) |
(6.0) |
(7.3) |
(9.0) |
(8.0) |
||
Acquisitions/disposals |
0.0 |
(78.3) |
0.0 |
0.0 |
0.0 |
||
Net interest |
(2.5) |
(5.5) |
(6.8) |
(4.1) |
(3.4) |
||
Equity financing |
0.0 |
0.0 |
(0.8) |
0.0 |
0.0 |
||
Dividends |
(9.1) |
(9.2) |
(9.1) |
(9.1) |
(9.2) |
||
Other |
(2.5) |
14.6 |
(4.4) |
(3.7) |
(3.7) |
||
Net Cash Flow |
(3.5) |
(55.6) |
14.1 |
10.0 |
11.7 |
||
Opening net debt/(cash) |
|
|
(10.5) |
(8.6) |
49.9 |
37.3 |
27.3 |
FX |
1.6 |
(2.9) |
(1.5) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(8.6) |
49.9 |
37.3 |
27.3 |
15.6 |
Source: Company data and Edison Investment Research
|
|
Research: Real Estate
Custodian Property Income REIT (CREI) has published results for the year ended 31 March 2024 (FY24). As previously indicated in the Q424 update, set against a challenging market environment, FY24 performance was strong. Underpinned by leasing progress and rental growth, EPRA EPS increased 3.6% to 5.8p, fully covering the targeted recurring DPS of 5.5p and the 0.3p special dividend. The FY25 annual DPS target is 6.0p (+9%), underpinned by the robust occupier market and CREI’s increasing confidence in unlocking the significant value embedded in its portfolio.