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Norcros — Solid H2 performance

Norcros (LSE: NXR)

Last close As at 21/11/2024

236.00

▲ 2.00 (0.85%)

Market capitalisation

212m

More on this equity

Research: Industrials

Norcros — Solid H2 performance

An in-line year end update pointed to an improved H2 trading period for UK based operations and good ongoing progress in South Africa. Full details on underlying profit trends will come with the FY17 results but we feel that the business is performing well in its markets and this is not being fully reflected in the company’s valuation.

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Industrials

Norcros

Solid H2 performance

Year end update

Construction & materials

18 April 2017

Price

170.25p

Market cap

£104m

£/ZAR 18.0

Net debt (£m) at end September 2016

27.5

Shares in issue

61.3m

Free float

98.3%

Code

NXR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.4

(1.0)

(4.4)

Rel (local)

4.4

(4.8)

(13.6)

52-week high/low

197.0p

138.0p

Business description

Norcros is a leading supplier of showers, 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

FY17 results

14 June 2017

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Norcros is a research client of Edison Investment Research Limited

An in-line year end update pointed to an improved H2 trading period for UK based operations and good ongoing progress in South Africa. Full details on underlying profit trends will come with the FY17 results but we feel that the business is performing well in its markets and this is not being fully reflected in the company’s valuation.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

222.1

14.0

18.0

5.6

9.5

3.3

03/16

235.9

18.5

24.7

6.6

6.9

3.9

03/17e

266.3

20.2

24.0

7.2

7.1

4.2

03/18e

274.4

21.8

25.7

7.5

6.6

4.4

Note: *PBT and EPS FD are normalised, excluding intangible amortisation and exceptional items. EPS/DPS are adjusted for a one-to-10 share consolidation (30 September 2015).

UK bounces back, South Africa progressing well

The FY17 trading update indicated group revenues of c £271m for the year, with a useful breakdown (actual, constant FX and LFL) of how this was achieved. The group figure is slightly above our estimate and existing UK operations (before acquisitions) appear to be the driver. H117 was a comparatively tough trading period for these businesses so the second half bounce back (LFL: H1 -5.0%, H2 +8.3%, FY +1.8%) is encouraging. This is clearly ahead of underlying RMI spend patterns and we understand that more regular demand was seen across most UK channels with a better export picture also. Acquired UK businesses also performed well. We note that the well-publicised economic challenges in South Africa have not affected trading and LFL progress remained very healthy (H1 +10.0%, H2 +7.0%, FY +8.4%). The average £/rand c 18.0 for the year was also in line with our model. Group net debt at the year-end was c £24m (vs our c £27m estimate).

Mixed market signals persist

The recent reporting season continues to highlight general caution on the impact of input price increases. Norcros had longer hedges in place than most and, we understand, is substantially through supply chain and customer negotiations. UK export performance already seems to have picked up, which may or may not be related to FX movements. We will revisit this and review estimates fully with FY17 results; our model currently includes some underlying progress in both reporting regions. One new item is the planned improvement in operating efficiencies and flagged capacity reduction at Johnson Tiles. As one of only two UK scale producers – with weaker sterling also feeding into import pricing – this may serve to tighten a flat market. The £2.3m cash cost (in H117) has an expected one year payback.

Valuation: Rating lags performance

Having responded well to the H117 results initially, the Norcros share price had given up most of the gains made from December’s 185p before rallying again in April. The company remains very lowly rated in our view (FY17e P/E 7.1x and EV/EBITDA, adjusted for pensions cash of 4.6x) with an attractive 4.2% trailing dividend yield. Underlying business performance is not fully factored in at this level.

Exhibit 1: Financial summary

£'ms

2011

2012

2013

2014

2015

2016

2017e

2018e

2019e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

Cont.

Cont.

Cont.

Cont.

Cont.

Revenue

 

 

196.1

200.3

210.7

218.7

222.1

235.9

266.3

274.4

283.4

Cost of Sales

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Gross Profit

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA

 

 

18.2

18.6

19.9

22.9

24.3

28.0

31.4

32.9

34.5

Operating Profit (before SBP)

 

 

11.6

12.3

13.7

17.0

18.3

22.5

24.8

26.3

27.9

Net Interest

 

 

(1.5)

(1.4)

(1.3)

(1.5)

(1.2)

(0.9)

(1.5)

(1.4)

(1.3)

Other financial - norm

 

 

(1.1)

(0.9)

(2.4)

(2.6)

(3.1)

(3.1)

(3.1)

(3.1)

(3.1)

Other financial

 

 

(0.4)

0.6

(0.2)

(5.2)

2.1

(0.2)

(1.5)

(2.0)

(2.0)

Intangible Amortisation

 

 

0.0

0.0

0.0

(0.4)

(0.3)

(0.9)

(1.2)

(1.2)

(1.2)

Exceptionals

 

 

(1.1)

(1.2)

(4.4)

(1.5)

(4.8)

(2.0)

(1.0)

(1.0)

(1.0)

Profit Before Tax (norm)

 

 

9.0

10.0

10.0

12.9

14.0

18.5

20.2

21.8

23.5

Profit Before Tax (company norm)

 

10.2

10.7

11.7

14.6

15.8

20.4

22.1

23.7

25.4

Profit Before Tax (FRS 3)

 

 

7.5

9.4

5.4

5.8

11.0

15.4

16.5

17.6

19.3

Tax

 

 

(0.8)

0.0

0.2

4.3

(3.0)

(2.4)

(4.1)

(4.8)

(5.2)

Other

 

 

0.0

0.0

0.0

(1.4)

0.1

0.0

0.0

0.0

0.0

Profit After Tax (norm)

 

 

8.2

10.4

9.3

13.9

11.1

16.1

16.1

17.1

18.4

Profit After Tax (FRS 3)

 

 

6.7

9.4

5.6

8.7

8.1

13.0

12.4

12.9

14.2

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

57.7

57.7

58.0

58.4

59.2

60.6

61.3

62.0

62.7

Average Number of Shares Outstanding FD (m)

57.7

58.0

58.9

60.8

61.5

62.2

63.0

63.7

64.4

EPS FD - normalised (p)

 

 

14.1

17.9

15.8

22.8

18.0

24.7

24.0

25.7

27.4

EPS FD - company normalised (p)

 

 

16.3

19.2

18.7

27.9

21.1

27.7

27.0

28.7

30.4

EPS - FRS 3 (p)

 

 

11.6

16.2

9.5

14.3

13.2

19.7

18.1

19.1

20.9

Dividend per share (p)

 

 

3.6

4.2

4.6

5.1

5.6

6.6

7.2

7.5

8.0

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

 

 

9.3

9.3

9.4

10.5

10.9

11.9

11.8

12.0

12.2

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

5.9

6.1

6.5

7.8

8.2

9.5

9.3

9.6

9.9

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

80.7

80.0

86.7

80.0

78.3

93.4

102.9

103.7

107.2

Intangible Assets

 

 

23.9

23.4

27.6

27.1

26.9

44.7

44.4

43.5

45.3

Tangible Assets

 

 

49.1

44.8

43.5

36.9

37.6

38.2

42.4

44.0

45.7

Investments

 

 

7.7

11.8

15.6

16.0

13.8

10.5

16.2

16.2

16.2

Current Assets

 

 

94.4

89.7

104.6

102.2

100.4

119.4

135.2

148.6

160.1

Stocks

 

 

42.3

45.5

52.8

50.2

52.2

60.1

69.1

71.2

73.5

Debtors

 

 

36.4

34.5

36.3

35.5

37.5

47.3

53.4

55.0

56.8

Cash

 

 

7.7

2.9

6.8

3.9

5.6

5.9

6.9

16.5

23.9

Current Liabilities

 

 

(56.4)

(52.5)

(54.0)

(58.1)

(60.0)

(67.6)

(73.1)

(79.5)

(85.8)

Creditors

 

 

(53.3)

(52.1)

(53.5)

(57.3)

(58.6)

(64.8)

(73.1)

(79.5)

(85.8)

Short term borrowings

 

 

(3.1)

(0.4)

(0.5)

(0.8)

(1.4)

(2.8)

0.0

0.0

0.0

Long Term Liabilities

 

 

(39.3)

(46.1)

(75.7)

(58.6)

(67.4)

(97.6)

(137.7)

(137.2)

(136.6)

Long term borrowings

 

 

(15.2)

(20.3)

(37.0)

(30.5)

(18.4)

(35.6)

(33.7)

(33.7)

(33.7)

Other long term liabilities

 

 

(24.1)

(25.8)

(38.7)

(28.1)

(49.0)

(62.0)

(104.0)

(103.5)

(102.9)

Net Assets

 

 

79.4

71.1

61.6

65.5

51.3

47.6

27.4

35.7

45.0

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

10.8

6.0

6.6

13.6

16.2

18.5

23.3

27.8

29.1

Net Interest

 

 

(1.0)

(1.6)

(1.3)

(1.6)

(1.3)

(0.9)

(1.5)

(1.4)

(1.3)

Tax

 

 

(0.6)

(0.6)

(1.0)

(1.7)

(0.5)

(1.0)

(2.0)

(3.6)

(4.3)

Capex

 

 

(6.3)

(6.7)

(4.2)

(2.8)

(1.4)

(6.6)

(8.3)

(8.3)

(8.3)

Acquisitions/disposals

 

 

4.4

0.0

(10.6)

0.1

3.3

(23.6)

(2.7)

(0.4)

(3.0)

Financing

 

 

0.0

0.2

0.3

0.4

0.2

0.1

0.0

0.0

0.0

Dividends

 

 

(0.7)

(2.2)

(2.5)

(2.8)

(3.1)

(3.6)

(4.1)

(4.6)

(4.9)

Net Cash Flow

 

 

6.6

(4.9)

(12.7)

5.2

13.4

(17.1)

4.8

9.6

7.4

Opening net debt/(cash)

 

 

15.9

10.6

17.8

30.7

27.4

14.2

32.5

26.8

17.2

HP finance leases initiated

 

 

0.0

(0.8)

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

(1.3)

(1.5)

(0.1)

(1.9)

(0.2)

(1.2)

0.9

0.0

(0.0)

Closing net debt/(cash)

 

 

10.6

17.8

30.7

27.4

14.2

32.5

26.8

17.2

9.8

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Norcros and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Norcros and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Industrials

Norcros — Robust performance, improving outlook

Industrials

Norcros — Vast opportunity and new targets revealed

Industrials

Norcros — Sale of Johnson Tiles UK agreed

Industrials

Norcros — FY24 trading in line with expectations

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Industrials

Avon Technologies — Record order book driving confident outlook

Industrials

Solid State — Defence contract delay affects expectations

Industrials

Melrose Industries — H224 progress in line with guidance

Industrials

Smiths News — Growth potential and a double-digit yield

Low & Bonar — AGM flags significant FY17 progress expected

In a brief AGM statement, management stated that FY17 was off to a good start with unchanged guidance for the year. There is tangible evidence of strategic actions and their benefits extend beyond the current financial year. Low & Bonar’s share price has picked up recently and is beginning to acknowledge the company’s growth prospects.

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