Norcros offers home comfort

Given the turmoil being faced by competitors in other parts of the building products market, the 3 per cent slide in underlying operating profit recorded by bathroom products specialist Norcros (NXR) to £21.4mn can be seen as something of a positive.

This is especially the case given Norcros’s portfolio of businesses in an underperforming South African market. Although it has learned to deal with rolling blackouts in terms of store operations, these still weigh on consumer confidence and revenue from its South African businesses fell by 25 per cent. By comparison, the 0.8 per cent increase in UK revenue (or 0.8 per cent decline, on a like-for-like basis) was viewed by chief executive Thomas Willcocks as being “robust”.

He argued that Norcros’s main market was the “mid-premium [repair, maintenance and improvement] segment”, which continues to trade well.

“The mid-upper part of the UK’s housing market remains resilient. There’s skips in every second driveway,” Willcocks said.

Cash generation was also strong, with the company reporting an inflow of £27.4mn, up from £16.1mn a year earlier as it was able to unwind some of its inventory build. Full-year expectations remain unchanged. Norcros shares rose by 2 per cent but are down by 10 per cent so far this year and trade at a bargain-basement level of just over 5x Peel Hunt’s forecast earnings, offering a dividend yield of 7 per cent. Although the South African business remains a risk, it is still generating a profit so if one assumes the UK RMI market can’t have much further to fall then at their current price the shares are looking attractive. A speculative buy.

Last IC view: Hold, 177p, 15 Jun 2023