Currency in GBP
Last close As at 28/03/2023
GBP1.87
▲ 7.50 (4.18%)
Market capitalisation
GBP160m
Research: Industrials
In a pre-close statement, Norcros flagged a positive H122 trading period. Outperformance of strong renovation markets in both the UK and South Africa is being attributed to relative supply chain, channel breadth and balance sheet strengths that are supporting share gains. Revised management expectations are ‘significantly’ higher and we have increased our previous PBT forecasts by 10–11%.
Written by
Toby Thorrington
Norcros |
Sure-footed progress |
H122 pre-close update |
Construction & materials |
18 October 2021 |
Share price performance
Business description
Next event
Analyst
Norcros is a research client of Edison Investment Research Limited |
In a pre-close statement, Norcros flagged a positive H122 trading period. Outperformance of strong renovation markets in both the UK and South Africa is being attributed to relative supply chain, channel breadth and balance sheet strengths that are supporting share gains. Revised management expectations are ‘significantly’ higher and we have increased our previous PBT forecasts by 10–11%.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/20 |
342.0 |
27.1 |
26.1 |
3.1 |
12.7 |
0.9 |
03/21 |
324.2 |
29.0 |
29.1 |
8.2 |
11.4 |
2.5 |
03/22e |
380.1 |
34.6 |
33.4 |
9.0 |
9.9 |
2.7 |
03/23e |
392.0 |
36.0 |
34.7 |
9.8 |
9.6 |
3.0 |
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.
Double-digit revenue growth and good H1 margin
Expected H122 group revenue of c £200m is 15% higher (+18% in local FX) than the pre-COVID H120. Based on an indicated £21m EBIT – which we believe is a record first half for the group – a 10.4% margin compares favourably to historical H1 levels. In the UK, l-f-l revenues were 18% ahead of H120 (+40% y-o-y), with Triton (showers) and Merlyn (shower enclosures) continuing to perform very well and taking market share. South African operations also saw l-f-l revenue progress of 20% in local currency terms (+11% in sterling) versus H120 with retail-oriented Tile Africa again leading the way. Norcros successfully de-geared during the COVID-affected FY21 and, despite prudently rebuilding inventory levels and paying the FY21 final dividend, it was still modestly cash positive at the end of H122.
Management guidance and estimates raised
Notwithstanding some well-rehearsed and widely heard market challenges (such as supply chain strains, cost inflation and normalising demand), Norcros management is flagging strong revenue momentum and has raised guidance to ‘significantly ahead’ of its previous expectations. Our FY22 EPS estimate has increased by c 12% (with a revenue adjustment slightly above this and modestly lower margins). This largely flows through into FY23 also (c 10% EPS uplift); on this basis, growth rates beyond the current year are c 4% now. We will revisit this with the H122 results announcement, but some caution – after a strong trading period with a few market uncertainties – seems appropriate at this stage.
Valuation: FY22e P/E still below 10x
Norcros’s share price responded favourably to the H122 update and is now up c 65% ytd. Our estimates have also risen strongly over this period, although there has been a partial re-rating to an FY22e P/E of 9.6x and EV/EBITDA (adjusted for pensions cash) of 6.3x. That said, the performance of the business in difficult markets over the past two years, its leading and enhanced market positions and ongoing opportunities to develop both organically and via acquisition suggest a proactive management approach committed to growth and market outperformance.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Cont. |
Revenue |
|
|
222.1 |
235.9 |
271.2 |
300.1 |
331.0 |
342.0 |
324.2 |
380.1 |
392.0 |
404.0 |
Cost of Sales |
|
|
N/A |
N/A |
(171.7) |
(190.4) |
(206.8) |
(217.5) |
N/A |
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 |
N/A |
EBITDA IFRS16 |
|
|
24.3 |
28.0 |
31.6 |
34.7 |
42.2 |
38.8 |
39.9 |
45.0 |
46.6 |
48.3 |
Op Profit (before SBP) |
|
|
18.3 |
22.5 |
25.2 |
28.3 |
35.6 |
32.2 |
34.7 |
39.5 |
40.9 |
42.3 |
Net Interest |
|
|
(1.2) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(1.6) |
(1.5) |
(0.6) |
(0.6) |
(0.5) |
Other financial - norm |
|
|
(3.1) |
(3.1) |
(3.6) |
(2.8) |
(2.9) |
(3.5) |
(4.3) |
(4.3) |
(4.3) |
(4.3) |
Other financial |
|
|
2.1 |
(0.2) |
(4.2) |
(4.5) |
2.3 |
0.9 |
(3.0) |
(1.0) |
(1.0) |
(1.0) |
Intangible Amortisation |
|
|
(0.3) |
(0.9) |
(1.2) |
(2.2) |
(3.5) |
(3.7) |
(3.7) |
(3.7) |
(3.7) |
(3.7) |
Exceptionals |
|
|
(4.8) |
(2.0) |
(3.8) |
(4.2) |
(4.3) |
(9.3) |
(3.8) |
0.0 |
0.0 |
0.0 |
Profit Before Tax (norm) |
|
|
14.0 |
18.5 |
20.7 |
24.4 |
30.9 |
27.1 |
29.0 |
34.6 |
36.0 |
37.5 |
Profit Before Tax (company norm) |
|
|
15.8 |
20.4 |
22.9 |
26.3 |
32.6 |
28.8 |
30.6 |
36.2 |
37.6 |
39.1 |
Profit Before Tax (statutory) |
|
|
11.0 |
15.4 |
11.5 |
13.5 |
25.4 |
15.0 |
18.5 |
29.9 |
31.3 |
32.8 |
Tax |
|
|
(3.0) |
(2.4) |
(3.0) |
(3.6) |
(6.0) |
(4.1) |
(3.5) |
(6.9) |
(7.2) |
(7.5) |
Other |
|
|
0.1 |
0.0 |
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 |
25.5 |
27.7 |
28.8 |
30.0 |
Profit After Tax (statutory) |
|
|
8.1 |
13.0 |
8.5 |
9.9 |
19.4 |
10.9 |
15.0 |
23.0 |
24.1 |
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avge Number of Shares Outstanding (m) |
|
59.2 |
60.6 |
61.1 |
68.0 |
80.2 |
80.3 |
80.6 |
80.8 |
80.8 |
80.8 |
|
Avge Number of Shares Outstanding FD (m) |
|
61.5 |
62.2 |
63.1 |
69.8 |
81.1 |
81.0 |
80.8 |
81.0 |
81.0 |
81.0 |
|
EPS FD - norm (p) |
|
|
18.0 |
24.7 |
24.4 |
26.8 |
29.6 |
26.1 |
29.1 |
33.4 |
34.7 |
36.1 |
EPS FD - co norm (p) |
|
|
21.1 |
27.7 |
27.8 |
29.5 |
31.7 |
28.2 |
31.1 |
35.3 |
36.6 |
38.1 |
EPS - statutory (p) |
|
|
13.2 |
20.8 |
13.4 |
14.1 |
23.9 |
13.5 |
18.6 |
28.4 |
29.7 |
31.2 |
Dividend per share (p) |
|
|
5.6 |
6.6 |
7.2 |
7.8 |
8.4 |
3.1 |
8.2 |
9.0 |
9.8 |
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
N/A |
N/A |
36.7 |
36.5 |
37.5 |
36.4 |
N/A |
N/A |
N/A |
N/A |
EBITDA Margin (%) |
|
|
10.9 |
11.9 |
11.7 |
11.6 |
12.8 |
11.3 |
12.3 |
11.8 |
11.9 |
11.9 |
Op Margin (before GW and except.) (%) |
|
8.2 |
9.5 |
9.3 |
9.4 |
10.8 |
9.4 |
10.7 |
10.4 |
10.4 |
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
78.3 |
93.4 |
98.8 |
147.9 |
138.0 |
150.8 |
141.2 |
141.1 |
140.7 |
140.0 |
Intangible Assets |
|
|
26.9 |
44.7 |
44.8 |
98.9 |
94.9 |
96.5 |
93.6 |
89.9 |
86.2 |
82.5 |
Tangible Assets |
|
|
37.6 |
38.2 |
43.0 |
45.0 |
42.3 |
49.6 |
47.6 |
51.2 |
54.5 |
57.5 |
Other Fixed Assets |
|
|
13.8 |
10.5 |
11.0 |
4.0 |
0.8 |
4.7 |
0.0 |
0.0 |
0.0 |
0.0 |
Current Assets |
|
|
100.4 |
119.4 |
165.3 |
165.1 |
169.5 |
188.7 |
171.0 |
182.8 |
199.8 |
217.8 |
Stocks |
|
|
52.2 |
60.1 |
70.3 |
74.9 |
79.5 |
78.9 |
78.1 |
87.6 |
90.3 |
95.1 |
Debtors |
|
|
42.6 |
53.4 |
57.5 |
64.4 |
62.8 |
62.5 |
64.6 |
69.3 |
72.6 |
76.0 |
Cash |
|
|
5.6 |
5.9 |
37.5 |
25.8 |
27.2 |
47.3 |
28.3 |
25.9 |
36.9 |
46.7 |
Current Liabilities |
|
|
(60.0) |
(67.6) |
(105.7) |
(89.8) |
(85.1) |
(79.2) |
(104.1) |
(104.1) |
(106.6) |
(109.2) |
Creditors |
|
|
(58.6) |
(64.8) |
(74.8) |
(81.3) |
(81.3) |
(79.1) |
(104.1) |
(104.1) |
(106.6) |
(109.2) |
Short term borrowings |
|
|
(1.4) |
(2.8) |
(30.9) |
(8.5) |
(3.8) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
|
|
(67.4) |
(97.6) |
(101.8) |
(118.6) |
(96.7) |
(155.9) |
(59.7) |
(57.3) |
(54.9) |
(52.4) |
Long term borrowings |
|
|
(18.4) |
(35.6) |
(29.8) |
(64.4) |
(58.4) |
(83.6) |
(17.8) |
(17.8) |
(17.8) |
(17.8) |
Other long-term liabilities |
|
|
(49.0) |
(62.0) |
(72.0) |
(54.2) |
(38.3) |
(72.3) |
(41.9) |
(39.5) |
(37.1) |
(34.6) |
Net Assets |
|
|
51.3 |
47.6 |
56.6 |
104.6 |
125.7 |
104.4 |
148.4 |
162.4 |
179.0 |
196.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
16.2 |
18.5 |
25.5 |
23.5 |
35.3 |
34.8 |
60.0 |
29.8 |
42.5 |
42.0 |
Net Interest |
|
|
(1.3) |
(0.9) |
(0.9) |
(1.1) |
(1.8) |
(3.5) |
(3.2) |
(2.4) |
(2.4) |
(2.3) |
Tax |
|
|
(0.5) |
(1.0) |
(1.9) |
(4.9) |
(4.6) |
(5.3) |
(3.5) |
(7.0) |
(7.8) |
(8.1) |
Capex |
|
|
(1.4) |
(6.6) |
(8.0) |
(7.7) |
(5.5) |
(4.8) |
(2.8) |
(9.0) |
(9.0) |
(9.0) |
Acquisitions/disposals |
|
|
3.3 |
(23.6) |
(2.7) |
(59.1) |
(2.1) |
(9.2) |
0.0 |
0.0 |
0.0 |
0.0 |
Financing |
|
|
0.2 |
0.1 |
0.0 |
30.1 |
(0.9) |
(0.8) |
0.3 |
(0.8) |
(0.8) |
(0.8) |
Dividends |
|
|
(3.1) |
(3.6) |
(4.2) |
(5.0) |
(6.4) |
(7.0) |
0.0 |
(9.0) |
(7.5) |
(8.0) |
Net Cash Flow |
|
|
13.4 |
(17.1) |
7.9 |
(24.2) |
14.0 |
4.2 |
50.8 |
1.6 |
15.0 |
13.8 |
Opening net debt/(cash) |
|
|
27.4 |
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(10.5) |
(8.1) |
(19.1) |
IFRS16 Finance leases |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(3.8) |
(4.3) |
(4.0) |
(4.0) |
(4.0) |
Other |
|
|
(0.2) |
(1.2) |
1.4 |
0.3 |
(1.9) |
(1.8) |
0.4 |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
|
|
14.2 |
32.5 |
23.2 |
47.1 |
35.0 |
36.4 |
(10.5) |
(8.1) |
(19.1) |
(28.9) |
IFRS16 lease liabilities |
|
|
|
|
|
|
|
(25.1) |
(24.2) |
(24.2) |
(24.2) |
(24.2) |
Source: Company accounts, Edison Investment Research
|
|
Research: Industrials
Smiths News has successfully performed a turnaround of the business that has seen it return to a core newspaper and magazine distribution operation. While the print sector is declining, revenue is predictable and management has a clearly demonstrable cost-saving track record such that cash flow is strong and profits are broadly flat, post COVID-19. This means that debt is being paid down and dividends are likely to become an increasing feature. We value the business at 77p, twice the current price.
Get access to the very latest content matched to your personal investment style.