Epwin Group — Making progress in soft markets

Epwin Group (AIM: EPWN)

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Research: Industrials

Epwin Group — Making progress in soft markets

Epwin’s H119 update reiterated existing guidance. Markets remain soft but business improvement activities, including new facility and product development investment, are ongoing and should be reflected in earnings improvement. The company remains conservatively funded and in a good position to continue to develop. An excellent dividend yield and modest rating at an earnings low represent good entry points for investors.

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Industrials

Epwin Group

Making progress in soft markets

End H119 update

Construction & materials

12 August 2019

Price

73.4p

Market cap

£105m

Net debt (£m) at end December 2018

24.8

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.1

(7.3)

3.2

Rel (local)

11.9

(7.6)

10.6

52-week high/low

87.25p

68.0p

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

H119 results announcement

11 September

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

Epwin’s H119 update reiterated existing guidance. Markets remain soft but business improvement activities, including new facility and product development investment, are ongoing and should be reflected in earnings improvement. The company remains conservatively funded and in a good position to continue to develop. An excellent dividend yield and modest rating at an earnings low represent good entry points for investors.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17**

292.8

22.4

13.4

6.7

5.8

9.1

12/18

281.1

16.5

9.8

4.9

7.5

6.7

12/19e

291.3

17.6

10.1

5.0

7.3

6.8

12/20e

296.2

18.7

10.7

5.3

6.9

7.2

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals. **Restated to exclude discontinued operations.

Progress in tough markets

H119 revenue was marginally ahead y-o-y on a like-for-like basis (ie ex Amicus and PVS acquisitions, Cardiff site closure and discontinued glass operations). This is likely to reflect some pricing improvement and, implicitly, volume softness, in our view. Given previous restructuring actions, progress from window systems (we expect, including weak competitor effects) and acquisitions, H119 EBIT should exceed its prior year equivalent (this was originally reported as £7.1m, like for like; likely to be slightly higher stripping out the exited glass business). Interim gains would support our assertion that despite still weak UK markets, FY18 represented the trough earnings year for Epwin. At the end of H119, net debt to EBITDA is understood to have been c 1x, slightly above the year-end position after the c £3m acquisition consideration is paid.

New facility investment and banking re-set

A site purchase, construction and lease agreement for a new warehouse and finishing facility at Telford has been signed, which will consolidate four other small facilities nearer to existing extrusion and fabrication operations. In financial terms, this yields a one-off £8m cash benefit for Epwin, which we expect to be received prior to the year-end. This is now in our model; there is no FY19 P&L effect and we will adjust as necessary (ie interest benefit, lease costs) for future years when H119 results are announced. Epwin has also re-set its banking arrangements with an enlarged RCF of £65m (previously c £60m spread across an RCF, term loan and accordion) and an overdraft facility of £10m (previously £5m) to 2022. This happened earlier than strictly required but simplifies Epwin’s financing structure.

Valuation: Value and income attractions

Epwin’s share price is back to levels seen at the beginning of the year following a c 13% decline since the beginning of June. (In contrast the FTSE All Share Index is up c 9% ytd.) As a result, the FY19 P/E of 7.3x and prospective dividend yield of 6.8% should appeal to value and income-focused investors alike. We acknowledge soft and uncertain markets but internal actions are driving our expectations of progress.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2017

2018

2019e

2020e

2021e

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

291.3

296.2

300.9

Cost of Sales

 

 

(185.8)

(186.7)

(178.6)

(200.6)

(207.5)

(201.5)

(196.4)

(203.3)

(206.8)

(210.0)

Gross Profit

 

 

69.5

72.8

77.4

92.6

90.8

91.3

84.8

88.0

89.5

90.9

EBITDA

 

 

21.4

24.5

25.6

33.3

30.3

32.1

27.0

28.2

29.5

30.3

Operating Profit (pre GW and except.)

15.6

19.5

20.1

25.6

22.3

24.2

18.7

19.7

20.7

21.3

Intangible Amortisation

 

 

(1.7)

(1.7)

(0.0)

(1.1)

(1.1)

(1.1)

(1.2)

(0.5)

(0.5)

(0.5)

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

18.0

19.5

20.1

Net Interest

 

 

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.2)

(1.5)

(1.4)

(1.3)

(1.2)

Profit Before Tax (norm)

 

 

14.6

18.0

19.2

24.3

20.5

22.4

16.5

17.6

18.7

19.4

Profit Before Tax (statutory)

 

 

7.9

18.6

18.6

23.0

12.0

13.9

13.3

16.6

18.2

18.9

Tax

 

 

(1.3)

(3.5)

(3.3)

(3.4)

(1.9)

(2.3)

(2.5)

(3.2)

(3.4)

(3.5)

Profit After Tax (norm)

 

 

12.4

14.4

15.9

20.9

17.6

19.1

14.0

14.4

15.3

15.9

Profit After Tax (statutory)

 

 

5.1

15.1

15.3

19.6

10.1

11.6

10.8

13.4

14.8

15.4

 

 

 

 

 

 

 

 

 

 

 

 

 

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 - normalised (p)

 

 

10.1

11.2

11.8

14.8

12.4

13.4

9.8

10.1

10.7

11.1

EPS - normalised (p) FD

 

 

10.1

11.2

11.7

14.7

12.4

13.4

9.8

10.1

10.7

11.1

EPS - statutory (p)

 

 

4.2

11.8

11.3

13.8

7.1

7.1

4.1

9.4

10.4

10.8

Dividend per share (p)

 

 

0.0

4.2

6.4

6.6

6.7

6.7

4.9

5.0

5.3

5.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

27.2

28.1

30.2

31.6

30.4

31.2

30.2

30.2

30.2

30.2

EBITDA Margin (%)

 

 

8.4

9.4

10.0

11.3

10.2

11.0

9.6

9.7

9.9

10.1

Operating Margin (pre GW and except.) (%)

6.1

7.5

7.9

8.7

7.5

8.3

6.7

6.7

7.0

7.1

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

54.7

53.8

93.5

108.5

106.2

 

111.7

115.9

115.6

115.1

Intangible Assets

 

 

26.4

24.7

59.7

70.2

69.6

 

73.7

75.2

74.7

74.2

Tangible Assets

 

 

25.1

26.2

33.1

37.9

36.0

 

37.3

40.0

40.2

40.2

Other

 

 

3.2

2.9

0.7

0.4

0.6

 

0.7

0.7

0.7

0.7

Current Assets

 

 

62.1

62.3

87.2

82.6

82.2

 

75.7

80.9

83.6

97.2

Stocks

 

 

21.7

22.4

23.6

28.2

29.6

 

29.2

32.2

33.3

33.8

Debtors

 

 

40.1

37.6

41.5

41.4

45.3

 

40.4

42.6

44.2

45.2

Cash

 

 

0.3

2.3

22.1

13.0

7.3

 

6.1

6.1

6.1

18.2

Current Liabilities

 

 

(54.5)

(49.0)

(68.8)

(79.2)

(79.2)

 

(69.3)

(76.6)

(71.4)

(76.7)

Creditors

 

 

(51.5)

(48.6)

(53.2)

(62.9)

(58.2)

 

(63.7)

(74.2)

(75.2)

(76.7)

Short term borrowings

 

 

(3.0)

(0.4)

(15.6)

(16.3)

(21.0)

 

(5.6)

(2.4)

3.8

0.0

Long Term Liabilities

 

 

(25.7)

(4.3)

(31.8)

(21.0)

(15.5)

 

(28.1)

(23.8)

(23.8)

(23.8)

Long term borrowings

 

 

(16.0)

(0.8)

(20.9)

(17.3)

(11.4)

 

(25.3)

(21.0)

(21.0)

(21.0)

Other long term liabilities

 

 

(9.7)

(3.5)

(10.9)

(3.7)

(4.1)

 

(2.8)

(2.8)

(2.8)

(2.8)

Net Assets

 

 

36.6

62.8

80.1

90.9

93.7

 

90.0

96.4

104.0

111.8

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

12.1

19.8

23.8

30.8

19.9

18.1

25.8

23.4

26.8

29.4

Net Interest

 

 

(0.9)

(0.7)

(0.5)

(1.0)

(1.0)

(1.0)

(1.3)

(1.4)

(1.3)

(1.2)

Tax

 

 

(0.9)

(1.7)

(2.3)

(3.8)

(2.7)

(2.7)

(2.6)

(2.7)

(2.9)

(3.0)

Capex

 

 

(4.9)

(5.6)

(9.0)

(12.7)

(7.1)

(5.3)

(12.5)

(1.3)

(9.3)

(9.3)

Acquisitions/disposals

 

 

(0.2)

0.0

(20.9)

(10.2)

(3.9)

(3.9)

0.0

(2.8)

0.0

0.0

Financing

 

 

0.0

10.0

0.0

0.0

0.0

0.0

(0.0)

0.0

0.0

0.0

Dividends

 

 

0.0

(1.9)

(6.7)

(9.1)

(9.5)

(9.5)

(8.8)

(7.0)

(7.2)

(7.6)

Net Cash Flow

 

 

5.2

19.9

(15.6)

(6.1)

(4.3)

(4.3)

0.5

8.2

6.2

8.3

Opening net debt/(cash)

 

 

23.2

18.7

(1.1)

14.4

20.6

20.6

25.1

24.8

17.3

11.1

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

0.9

0.0

0.0

0.0

Closing net debt/(cash)

 

 

18.7

(1.1)

14.4

20.6

25.1

25.1

24.8

17.3

11.1

2.8

Source: Epwin accounts, Edison Investment Research. Note: FY13 to FY17 EPS benefited in part from recovered tax losses. FY17 restated for discontinued operations.


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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.

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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

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.

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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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Research: Healthcare

Photocure — US continues to be the driver

Photocure announced results for Q219, with 23% revenue growth for the Hexvix/Cysview franchise (vs Q218) to NOK52.1m. Sequentially, however, Hexvix/Cysview sales only grew 2% due to lower Nordic and partner region revenues, which offset strong US sales. In the US, sales increased 52% over the same quarter in the previous year and 16% sequentially. This was driven mainly by improved reimbursement and a higher installed base of blue light cystoscopes. There are now 188 installed cystoscopes in the US, indicating 10% growth in the installed base over the quarter.

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