After poor weather slowed Eurocell’s (ECEL) sales in the first four months of 2018, demand picked up significantly in May and June for its PVC building products. Good news, though this spike led to a short-term rise in manufacturing costs – not least because products were being made from 100 per cent virgin resin rather than including recycled materials and scrap. In turn, this reduced the gross margin from 51.4 per cent to 50 per cent. Reassuringly, work is being undertaken to mitigate such challenges – including lifting selling prices where possible, and adding more co-extrusion capacity.
True, pre-tax profits fell slightly year-on-year. But management expects a stronger second half – partly because of the aforementioned rise in selling prices, and partly because of the phasing of its branch opening programme. Indeed, six new sites have been opened so far, but 15 are expected for the full year.
On 1 August, after the reporting period-end, Eurocell acquired Ecoplas – a PVC windows recycling business – for an initial consideration of £5m. This marked progress on the company’s goal to increase the use of recycled materials in its primary extrusion processes, and strengthened its position as the UK’s leading PVC window recycler. An 18-month period of capital investment into the Ecoplas plant, starting immediately, will improve its reliability and eliminate bottlenecks from production processes.
Analysts at Peel Hunt expect adjusted pre-tax profits of £26.4m and EPS of 22.2p in 2018, against £26.1m and 21.5p in 2017.
| EUROCELL (ECEL) | ||||
| ORD PRICE: | 255p | MARKET VALUE: | £ 256m | |
| TOUCH: | 252-258p | 12-MONTH HIGH: | 267p | LOW: 194p |
| DIVIDEND YIELD: | 3.6% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 52p* | NET DEBT: | 31% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 108 | 10.8 | 8.9 | 3.0 |
| 2018 | 119 | 10.5 | 8.8 | 3.1 |
| % change | +10 | -3 | -1 | +3 |
| Ex-div: | 06 Sep | |||
| Payment: | 05 Oct | |||
| *Includes intangible assets of £19.2m, or 19p a share | ||||
