Norcros — Strong anchors weather the storms

Norcros (LSE: NXR)

Last close As at 23/05/2024

GBP2.21

3.00 (1.38%)

Market capitalisation

GBP199m

More on this equity

Research: Industrials

Norcros — Strong anchors weather the storms

Norcros’s total revenue grew 2.1% in Q124 versus a strong comparator period despite tough UK market conditions and power outages in South Africa as the company’s strong service offering and multiple routes to market allowed it to unlock market share opportunities. We continue to believe Norcros’s key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We retain our estimates and value Norcros at 246p, implying c 50% upside.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Norcros

Strong anchors weather the storms

AGM trading update

Construction and materials

2 August 2023

Price

166p

Market cap

£148m

ZAR23.1/£

Net debt (£m) at 31 March 2023

49.9

Shares in issue

89.3m

Free float

98%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.6

(14.9)

(24.9)

Rel (local)

(1.4)

(12.8)

(26.3)

52-week high/low

232p

153p

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

H1 trading update

12 October

Interim results

9 November

Analyst

Andy Murphy

+44 (0)20 3077 5700

Norcros is a research client of Edison Investment Research Limited

Norcros’s total revenue grew 2.1% in Q124 versus a strong comparator period despite tough UK market conditions and power outages in South Africa as the company’s strong service offering and multiple routes to market allowed it to unlock market share opportunities. We continue to believe Norcros’s key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We retain our estimates and value Norcros at 246p, implying c 50% upside.

Year

end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/22

396.3

39.3

38.2

10.0

4.3

6.0

03/23

441.0

41.8

37.4

10.2

4.4

6.1

03/24e

442.1

36.7

31.6

10.2

5.3

6.1

03/25e

447.2

37.9

32.4

10.2

5.1

6.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is diluted.

UK ‘broadly in line’, RSA hit by power outages

In Q124, total revenue increased 2.1% on a constant currency basis, but declined 4.2% like-for-like on the same basis against a strong prior year comparator. Revenue in the UK was ‘broadly in line’ with the previous year despite the tougher demand environment and Norcros was able to gain market share, particularly in the trade sector due to superior service and offering. In South Africa, widespread national electricity supply interruptions severely affected operations in April and May, though there was some improvement in supply in June. Total revenue was down 10.9% on a constant currency basis versus a strong comparator. Management in South Africa continues to manage the impact of supply interruptions on operations.

New experienced chairman appointed

At the AGM in July, David McKeith, who was acting board chair and chair of the audit and risk committee, stood down from the board and Steve Good was appointed board chair. Steve is currently a non-executive director (NED) of Elementis and has held several other Chair and NED roles. He was chief executive of Low & Bonar for five years to 2014. This change follows the promotion of Thomas Willcocks from group business director – UK, to CEO in April. He had previously held several senior positions in the South African division.

Valuation: Estimates unchanged, c 50% upside

Following the Q1/AGM trading update, we have retained our full-year estimates. Norcros is currently trading at the lower end of its long-term consensus forward P/E range on 5.2x, suggesting that a lot of bad news might already be priced in. Our P/E based valuation implies a value of 237p/share based on our diluted underlying FY24 EPS estimate of 31.6p/share. Our dividend discount model implies a value of 255p/share, and if we take the average of the two, we arrive at 246p, implying c 50% upside.

Exhibit 1: Financial summary

£'m

2021

2022

2023

2024e

2025e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

324.2

396.3

441.0

442.1

447.2

EBITDA

 

 

39.2

47.0

52.3

49.4

49.8

Normalised operating profit

 

 

33.8

41.8

47.3

43.2

43.7

Operating profit - Underlying

33.8

41.8

47.3

43.2

43.7

IAS 19R Pension scheme expenses

(1.4)

(1.7)

(1.6)

(1.7)

(1.7)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Impairment and acquisition related costs

(3.7)

(4.8)

(8.4)

(8.2)

(8.2)

Other

(3.8)

0.9

(9.8)

0.0

0.0

Reported operating profit

24.9

36.2

27.5

33.3

33.8

Net Interest

(6.4)

(3.2)

(5.8)

(7.9)

(7.2)

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)

 

 

27.4

38.6

41.5

35.3

36.5

PBT - Underlying

 

 

30.6

39.3

41.8

36.7

37.9

Profit Before Tax (reported)

 

 

18.5

33.0

21.7

25.4

26.6

Reported tax

(3.5)

(7.3)

(4.9)

(7.9)

(8.2)

Profit After Tax (norm)

23.9

31.3

36.6

27.4

28.2

Profit After Tax (Underlying)

25.1

31.5

36.9

28.8

29.6

Profit After Tax (reported)

15.0

25.2

16.8

17.5

18.3

Net income (normalised)

23.9

31.3

36.6

27.4

28.2

Net income (Underlying)

25.1

31.5

36.9

28.8

29.6

Net income (reported)

15.0

25.2

16.8

17.5

18.3

Basic average number of shares outstanding (m)

81

81

88

89

89

EPS - basic normalised (p)

 

 

29.65

38.70

41.53

30.73

31.64

EPS - diluted normalised (p)

 

 

29.58

37.99

40.89

30.02

30.91

EPS - diluted, underlying

 

 

31.06

38.23

37.43

31.55

32.44

EPS - basic reported (p)

 

 

18.61

31.15

19.06

19.64

20.55

Dividend (p)

8.20

10.00

10.20

10.20

10.20

Revenue growth (%)

(-5.2)

22.2

11.3

0.2

0.0

EBITDA Margin (%)

12.1

11.9

11.9

11.2

11.1

Normalised Operating Margin (%)

10.4

10.5

10.7

9.8

9.8

BALANCE SHEET

Fixed Assets

 

 

141.2

158.8

226.8

215.7

205.0

Intangible Assets

93.6

90.3

167.1

159.5

151.9

Tangible Assets

28.0

29.0

24.8

27.6

30.8

Investments & other

19.6

39.5

34.9

28.6

22.3

Current Assets

 

 

171.0

200.7

216.2

221.3

225.8

Stocks

78.1

100.6

103.9

108.3

111.8

Debtors

64.6

71.1

83.3

84.0

85.0

Cash & cash equivalents

28.3

27.4

29.0

29.0

29.0

Other

0.0

1.6

0.0

0.0

0.0

Current Liabilities

 

 

(104.1)

(110.8)

(112.7)

(113.0)

(114.1)

Creditors

(95.4)

(102.4)

(99.2)

(99.5)

(100.6)

Tax and social security

(1.0)

(2.7)

(0.9)

(0.9)

(0.9)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

(7.7)

(5.7)

(12.6)

(12.6)

(12.6)

Long Term Liabilities

 

 

(59.7)

(48.4)

(119.9)

(101.5)

(81.5)

Long term borrowings

(17.8)

(18.8)

(78.9)

(69.1)

(57.7)

Other long term liabilities

(41.9)

(29.6)

(41.0)

(32.4)

(23.8)

CASH FLOW

Op Cash Flow before WC and tax

39.2

47.0

52.3

49.4

49.8

Working capital

21.8

(23.6)

(13.3)

(4.8)

(3.3)

Exceptional & other

0.0

0.0

0.0

0.0

0.0

Tax

(3.5)

(6.5)

(7.7)

(7.9)

(8.2)

Other

(2.0)

(0.9)

(2.5)

(0.9)

(0.9)

Net operating cash flow

 

 

55.5

16.0

28.8

35.7

37.4

Capex

(2.8)

(5.4)

(6.0)

(8.5)

(9.0)

Acquisitions/disposals

0.0

0.0

(78.3)

0.0

0.0

Net interest

(3.2)

(2.5)

(5.5)

(4.8)

(4.1)

Dividends

0.0

(9.1)

(9.2)

(9.0)

(9.1)

Other

(3.2)

(2.5)

14.6

(3.7)

(3.7)

Net Cash Flow

46.3

(3.5)

(55.6)

9.8

11.5

Opening net debt/(cash)

 

 

36.4

(10.5)

(8.6)

49.9

40.1

FX

0.6

1.6

(2.9)

0.0

0.0

Closing net debt/(cash)

 

 

(10.5)

(8.6)

49.9

40.1

28.7

Source: Norcros 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 £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 2023 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 2023 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

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