Norcros — Robust performance, improving outlook

Norcros (LSE: NXR)

Last close As at 01/11/2024

236.00

2.00 (0.85%)

Market capitalisation

212m

More on this equity

Research: Industrials

Norcros — Robust performance, improving outlook

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.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Norcros

Robust performance, improving outlook

FY24 preliminary results

Construction and materials

14 June 2024

Price

207p

Market cap

£186m

Net debt (£m) at 31 March 2024

37.3

Shares in issue

89.6m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

8.4

21.2

Rel (local)

(1.0)

3.4

13.1

52-week high/low

231p

136p

Business description

Norcros is a leading supplier of showers, enclosures, 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 events

AGM

July 2024

Interims

November 2024

Analyst

Andy Murphy

+44 (0)20 3077 5700

Norcros is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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


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 £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.

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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom


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 £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.

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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Norcros

View All

Latest from the Industrials sector

View All Industrials content

Research: Real Estate

Custodian Property Income REIT — Organic earnings and dividend growth

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.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free