Epwin Group — Responding to COVID-19

Epwin Group (AIM: EPWN)

Last close As at 20/12/2024

GBP0.96

1.50 (1.59%)

Market capitalisation

GBP133m

More on this equity

Research: Industrials

Epwin Group — Responding to COVID-19

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.

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Written by

Industrials

Epwin Group

Responding to COVID-19

Year-end and

initial COVID-19 update

Construction & materials

3 April 2020

Price

61.0p

Market cap

£87m

Core net debt (£m) at end June 2019

29.2

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(32.5)

(40.3)

(15.9)

Rel (local)

(16.6)

(15.8)

13.2

52-week high/low

113.5p

58.4p

Business description

Epwin Group supplies functional low-maintenance exterior building products (including windows, doors, roofline and rainwater goods) into a number of UK market segments and is a modest exporter. It has a vertically integrated model in windows and doors and a leading market position in roofline products.

Next events

FY19 results

TBC

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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.


General disclaimer and copyright

This report has been commissioned by Epwin and prepared and issued by Edison, in consideration of a fee payable by Epwin. Edison Investment Research standard fees are £49,500 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.

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General disclaimer and copyright

This report has been commissioned by Epwin and prepared and issued by Edison, in consideration of a fee payable by Epwin. Edison Investment Research standard fees are £49,500 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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