BULL POINTS:
■ Steady sales growth
■ Net debt sharply lower
■ Dividends to resume
■ Demise of Pilkington Tiles
BEAR POINTS:
■ Some exposure to new housing
■ South African operation barely profitable
Shares in Norcros came to the London market in July 2007 at a price of 78p. Since then the share price has collapsed to 11p. In fact, the price was down to 6.5p in May as investors fretted about losses caused by exceptional items, the lack of a dividend and concerns over debt covenants. Directors in Norcros obviously didn't share these concerns. In June, they bought over 27m shares at between 7p and 8p. This was not only a statement of commitment but, as it turned out, a profitable one.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Short term |
| What do these mean? Find out in our | |
All right, the issue price was set as the financial crisis was starting up, so some fall was odds on. But Norcros also had its work to do sorting out loss-making activities and writing down the value of its troubled Greek operation. Then there were worries about the level of debt, which peaked at £113m in 2007 before a share placing and downward pressure on costs reduced this to a manageable £15m at the March year-end.
At least despite all of these pressures, management maintained - and is now increasing - sales. Norcros operates in the UK, South Africa and Australia under the brand names of Triton Showers and Johnson Tiles. It is the UK's largest tile maker, and its position has been strengthened by the demise of Pilkington Tiles, its closest competitor.
| NORCROS (NXR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 11.5p | MARKET VALUE: | £66.4m | |
| TOUCH: | 10.5-11.5p | 12-MONTH HIGH: | 11.5p | LOW: 6p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 12p | NET DEBT: | 22% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 162 | 5.9 | 9.8 | nil |
| 2008 | 168 | 9.9 | 7.9 | 3.22 |
| 2009 | 154 | -4.8 | -4.2 | nil |
| 2010 | 170 | -10. | -3.4 | nil |
| 2011 | 188 | 9.4 | 1.5 | 0.40 |
| % change | +11 | – | – | – |
Normal market size: 30,000 Market makers: 5 Beta: 0.6 * Numis estimates | ||||
Investing in a two-trick pony when public-spending cuts and unemployment remain big concerns might seem daft at first. But Norcros's exposure here is limited. Of course, few companies can avoid the fall-out from a collapse in consumer spending, but most of Norcros's shower sales are made in the replacement market, where fixing a broken shower probably still qualifies as non-discretionary spending.
In fact, City analysts expect trading profits for the half-year to November to be up by 60 per cent from a year earlier at £6m, turning last-year's first half pre-tax loss of £1.7m into a profit of £3.4m. True, so the profit will include a one-off gain of £2.7m relating to the sale of Norcros's stake in Australian group RJ Beaumonth, but the underlying picture remains pleasantly strong, with turnover set to rise 17 per cent to £97m. And management reckons that the trend has continued into the second half. What's more, steps to beef up the South African operation may be producing results - losses have been stemmed, though profitability remains weak. And, with improved cashflow and lower interest charges, Norcros expects to restore a dividend, too.
