Epwin Group — Positive trading tone into Q4

Epwin Group (AIM: EPWN)

Last close As at 20/12/2024

GBP0.95

−4.50 (−4.55%)

Market capitalisation

GBP131m

More on this equity

Research: Industrials

Epwin Group — Positive trading tone into Q4

A disrupted and volatile trading year – with COVID-19 hitting in Q2 and well above-average growth rates in other months – ended for Epwin with positive year-on-year revenue growth into Q4. Although we have reinstated estimates at lower levels, the company’s business resilience is reflected in good cash flow management and a likely FY20 final dividend payment.

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Industrials

Epwin Group

Positive trading tone into Q4

Year-end update

Construction & materials

6 January 2021

Price

91.2p

Market cap

£131m

Core net debt (£m) at end June 2020

21.3

Shares in issue

142.9m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.8

36.6

(11.5)

Rel (local)

1.6

21.2

0.0

52-week high/low

1113.5p

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

FY20 results announcement

15 April 2021

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Epwin Group is a research client of Edison Investment Research Limited

A disrupted and volatile trading year – with COVID-19 hitting in Q2 and well above-average growth rates in other months – ended for Epwin with positive year-on-year revenue growth into Q4. Although we have reinstated estimates at lower levels, the company’s business resilience is reflected in good cash flow management and a likely FY20 final dividend payment.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

281.1

16.5

9.8

4.9

9.3

5.4

12/19

282.1

15.0

8.5

1.8

10.8

1.9

12/20e

239.1

4.1

2.4

1.0

38.9

1.1

12/21e

260.5

9.0

5.1

2.5

17.9

2.7

Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation and exceptionals, on an IFRS 16 basis from FY19. Dividends: FY19 represents a H1 payment only; FY20 represents our expected final DPS.

Busy end to 2020

Epwin’s positive end to 2020 saw improving momentum in Q4. Specifically, revenue of +2–3% y-o-y in July and August has amplified to +5% for the five months to November. Implicitly, then the September/October/November months – a seasonally important trading period in any year – were ahead in the order of 6–8%. (We note that year-on-year revenues grew in both divisions in H219, so the comparators for H220 were reasonably firm.) Hence, the combined sales uplift in window systems and cellular lines (which are substantially part of Extrusion & Moulding) of 9% for the July to November period represents a strong performance. Group revenues have recovered to c -15% y-o-y for the 11-month period, which is less than half of the c 33% y-o-y shortfall at the H1 stage. RMI demand has remained firm, supplemented by recovering newbuild and, most recently, social housing activity.

Taking a cautious stance on earnings recovery

Management noted revenues and PBT are expected to be ahead of consensus while net debt will be lower. Our reinstated EPS estimates for FY20 and FY21 are c 75% and c 50% lower than levels at the beginning of May (when they were withdrawn) chiefly due to the small loss recorded in H120 and a cautious view on the rate of recovery beyond this year. Current run rates probably include a combination of pent-up demand and behaviour influenced by housing market incentives. We recognise this but are also wary of the potential effect of rising unemployment on consumer sentiment. Nevertheless, we expect (Epwin defined) net debt:EBITDA to fall from c 1.3x for FY20 to c 0.9x one year out and factor in a nominal FY20 final dividend payment consistent with management comments.

Valuation: Earnings recovery to drive share price

Epwin’s share price participated in the market rally from the beginning of November and ended 2020 just 10% down for the year, slightly better than the FTSE All Share Index performance. Consequently, the FY20e rating is inflated due to the greater impact of COVID-19 on earnings (P/E 38.9x, EV/EBITDA 9.6x). We feel rising confidence in the post-COVID-19 rate of earnings recovery will be a key sentiment driver going into FY21.

Exhibit 1: Financial summary

£m's

2013

2014

2015

2016

2017

2017

2018

2019

2020e

2021e

2022e

December

IFRS

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

282.1

239.1

260.5

273.5

Cost of Sales

 

 

(185.8)

(186.7)

(178.6)

(200.6)

(207.5)

(201.5)

(196.4)

(193.3)

(169.7)

(183.0)

(190.0)

Gross Profit

 

 

69.5

72.8

77.4

92.6

90.8

91.3

84.8

88.8

69.3

77.5

83.5

EBITDA (pre IFRS16)

 

 

21.4

24.5

25.6

33.3

30.3

32.1

26.7

26.4

15.3

20.6

24.3

Operating Profit (pre IFRS16 norm)

 

15.6

19.5

20.1

25.6

22.3

24.2

18.7

19.1

6.9

11.9

15.4

Operating Profit (IFRS16 norm) 

 

 

 

 

 

 

 

 

21.2

9.0

14.0

17.5

Intangible Amortisation

 

 

(1.7)

(1.7)

(0.0)

(1.1)

(1.1)

(1.1)

(1.2)

(0.3)

(0.4)

(0.4)

(0.4)

Exceptionals

 

 

(5.1)

2.3

(0.6)

(0.2)

(7.4)

(7.4)

(2.0)

(2.3)

(2.2)

0.0

0.0

Other

 

 

0.0

(0.8)

(0.4)

(0.3)

(0.6)

(0.6)

(0.7)

(1.4)

(0.4)

(0.7)

(0.7)

Operating Profit

 

 

8.8

19.3

19.1

24.0

13.2

15.1

14.8

17.2

6.0

12.9

16.4

Net Interest

 

 

(1.0)

(0.7)

(0.5)

(1.0)

(1.2)

(1.2)

(1.5)

(4.8)

(4.5)

(4.3)

(4.1)

Profit Before Tax (IFRS16 norm)

 

14.6

18.0

19.2

24.3

20.5

22.4

16.5

15.0

4.1

9.0

12.7

Profit Before Tax (statutory)

 

 

7.9

18.6

18.6

23.0

12.0

13.9

13.3

12.4

1.5

8.6

12.3

Tax

 

 

(1.3)

(3.5)

(3.3)

(3.4)

(1.9)

(2.3)

(2.5)

(2.8)

(0.7)

(1.6)

(2.3)

Profit After Tax (norm)

 

 

12.4

14.4

15.9

20.9

17.6

19.1

14.0

12.1

3.4

7.4

10.4

Profit After Tax (statutory)

 

 

5.1

15.1

15.3

19.6

10.1

11.6

10.8

9.5

0.8

7.0

10.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

128.0

135.2

141.5

142.6

142.6

142.9

142.9

143.0

144.5

144.5

EPS - normalised (p)

 

10.1

11.2

11.8

14.8

12.4

13.4

9.8

8.5

2.4

5.1

7.2

EPS - normalised (p) FD

 

 

11.2

11.7

14.7

12.4

13.4

9.8

8.5

2.3

5.1

7.2

EPS - statutory (p)

 

 

4.2

11.8

11.3

13.8

7.1

7.1

4.1

6.7

0.5

4.8

6.9

Dividend per share (p)

 

 

0.0

4.2

6.4

6.6

6.7

6.7

4.9

1.8

1.0

2.5

3.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

27.2

28.1

30.2

31.6

30.4

31.2

30.2

31.5

29.0

29.8

30.5

EBITDA pre IFRS16 Margin(%) 

 

8.4

9.4

10.0

11.3

10.2

11.0

9.5

9.3

6.4

7.9

8.9

Operating Margin pre IFRS16 norm (%)

 

6.1

7.5

7.9

8.7

7.5

8.3

6.7

6.8

2.9

4.6

5.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

54.7

53.8

93.5

108.5

106.2

 

111.7

125.6

120.4

120.3

120.0

Intangible Assets

 

 

26.4

24.7

59.7

70.2

69.6

 

73.7

75.7

75.3

74.9

74.5

Tangible Assets

 

 

25.1

26.2

33.1

37.9

36.0

 

37.3

46.1

41.3

41.6

41.7

Other

 

 

3.2

2.9

0.7

0.4

0.6

 

0.7

3.8

3.8

3.8

3.8

Current Assets

 

 

62.1

62.3

87.2

82.6

82.2

 

75.7

91.5

84.5

92.8

102.7

Stocks

 

 

21.7

22.4

23.6

28.2

29.6

 

29.2

30.3

30.1

32.5

33.7

Debtors

 

 

40.1

37.6

41.5

41.4

45.3

 

40.4

44.0

37.4

42.0

43.9

Cash

 

 

0.3

2.3

22.1

13.0

7.3

 

6.1

17.2

17.1

18.4

25.1

Current Liabilities

 

 

(54.5)

(49.0)

(68.8)

(79.2)

(79.2)

 

(69.3)

(77.4)

(68.1)

(72.1)

(74.9)

Creditors

 

 

(51.5)

(48.6)

(53.2)

(62.9)

(58.2)

 

(63.7)

(76.1)

(64.1)

(68.1)

(70.9)

Short term borrowings

 

 

(3.0)

(0.4)

(15.6)

(16.3)

(21.0)

 

(5.6)

(1.3)

(4.0)

(4.0)

(4.0)

Long Term Liabilities

 

 

(25.7)

(4.3)

(31.8)

(21.0)

(15.5)

 

(28.1)

(36.7)

(36.0)

(36.0)

(36.0)

Long term borrowings

 

 

(16.0)

(0.8)

(20.9)

(17.3)

(11.4)

 

(25.3)

(32.3)

(32.3)

(32.3)

(32.3)

Other long term liabilities

 

 

(9.7)

(3.5)

(10.9)

(3.7)

(4.1)

 

(2.8)

(4.4)

(3.7)

(3.7)

(3.7)

Net Assets

 

 

36.6

62.8

80.1

90.9

93.7

 

90.0

103.0

100.8

105.0

111.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

12.1

19.8

23.8

30.8

19.9

18.1

25.8

34.8

22.9

27.9

32.8

Net Interest

 

 

(0.9)

(0.7)

(0.5)

(1.0)

(1.0)

(1.0)

(1.3)

(1.6)

(1.7)

(1.5)

(1.4)

Tax

 

 

(0.9)

(1.7)

(2.3)

(3.8)

(2.7)

(2.7)

(2.6)

(3.3)

(0.7)

(3.1)

(2.3)

Capex

 

 

(4.9)

(5.6)

(9.0)

(12.7)

(7.1)

(5.3)

(12.5)

1.5

(10.6)

(9.2)

(9.2)

Acquisitions/disposals

 

 

(0.2)

0.0

(20.9)

(10.2)

(3.9)

(3.9)

0.0

(2.2)

0.0

0.0

0.0

Financing

 

 

0.0

10.0

0.0

0.0

0.0

0.0

(0.0)

(12.3)

(10.0)

(10.0)

(10.0)

Dividends

 

 

0.0

(1.9)

(6.7)

(9.1)

(9.5)

(9.5)

(8.8)

(7.1)

0.0

(2.7)

(3.2)

Net Cash Flow

 

 

5.2

19.9

(15.6)

(6.1)

(4.3)

(4.3)

0.6

9.7

(0.1)

1.3

6.7

Opening net debt/(cash)

 

 

23.2

18.7

(1.1)

14.4

20.6

20.6

25.1

24.8

16.4

19.2

17.9

Finance leases initiated

 

 

(0.5)

(0.3)

0.4

1.9

(1.4)

(1.4)

(1.1)

0.0

0.0

0.0

0.0

Other

 

 

(0.1)

0.2

(0.3)

(2.1)

1.2

1.2

0.8

(1.4)

(2.7)

0.0

0.0

Closing net debt/(cash)**

 

 

18.6

(1.1)

14.4

20.6

25.1

25.1

24.8

16.4

19.2

17.9

11.2

IFRS16 Leases

 

 

 

 

 

 

 

 

 

71.0

66.2

66.2

66.2

Source: Company accounts, Edison Investment Research. Note: *IFRS16 from 2019. **Consistent with company defined pre IFRS16 net debt which includes some other (non IFRS16) finance leases (H120: £4m); we have assumed this category of leases to be constant in our estimate years (and shown as short term borrowings).


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This report has been commissioned by Epwin Group and prepared and issued by Edison, in consideration of a fee payable by Epwin Group. 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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This report has been commissioned by Epwin Group and prepared and issued by Edison, in consideration of a fee payable by Epwin Group. 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.

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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.

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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.

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United Kingdom

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Auriant’s Q320 results were reported within the context of known production. While financial results were somewhat below our expectations (see Exhibit 1), the shortfall could be almost entirely attributed to the underperformance of Auriant’s peripheral Solcocon alluvial asset, where the operations of a third-party contractor were disrupted by the coronavirus. By contrast, operations at Auriant’s core Tardan asset were almost completely unaffected by COVID-19, with production within the expected range and costs below our expectations. We have reduced our EPS forecast for FY20 by 8.5% to reflect both Solcocon’s performance in Q3 and our expectations for Q4, and the decline in the gold price since 6 November. Nevertheless, three quarters into the year, Auriant achieving its full-year production guidance appears almost a foregone conclusion. In the meantime, its shares are trading on a current year P/E multiple of only 4.6x and at less than half our valuation of the company.

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