Selling taps and shower fixings may not set the pulse racing, but Norcros (NXR) is doing it rather well, and is on course to notch up the 10th successive year of earnings growth if trading in the six months to September 2018 is anything to go by.
Profits likely to be higher than previously expected
Big expansion plans for the next five years
Shares cheaply rated
Strong cash flow
Tough trading at Johnson Tiles
Returns marred by pension, acquisition and exceptional costs
Group revenue in the first half is expected to be over 13 per cent ahead of the previous year on a constant currency basis, with strong organic growth accompanied by increased revenue from recent acquisitions such as Merlyn.
Norcros has several operating brands, including Triton showers, Johnson Tiles and Merlyn, which supplies shower enclosures in the UK and Ireland. There are also three brands operating in South Africa covering adhesives and tiles.
Having largely achieved a number of strategic targets for growth for the period 2013-18, another five-year plan has been put in place with the aim of doubling revenue to £600m by 2023, and generating half of sales from outside the UK, compared with a third last year. Meanwhile, the target for an underlying return on capital employed (ROCE) has also been revised from 12-15 per cent to being maintained over 15 per cent.
New product ranges are already driving revenue growth both in the UK and export markets, with Triton seeing increased demand from both trade and retail sectors. As well as demand from new-build, showers in existing homes are regarded as non-discretionary. In other words, when one wears out, it’s replaced.
| NORCROS (NXR) | ||||
| ORD PRICE: | 214p | MARKET VALUE: | £172m | |
| TOUCH: | 213-217p | 12-MONTH HIGH: | 234p | LOW: 170p |
| FORWARD DIVIDEND YIELD: | 4.1% | FORWARD PE RATIO: | 7 | |
| NET ASSET VALUE: | 131p* | NET DEBT: | 45% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
| 2016 | 236 | 20.4 | 27.8 | 6.6 |
| 2017 | 271 | 22.9 | 27.8 | 7.2 |
| 2018 | 300 | 26.3 | 29.5 | 7.8 |
| 2019** | 332 | 32.4 | 31.1 | 8.4 |
| 2020** | 341 | 34.0 | 32.6 | 8.8 |
| % change | +3 | +5 | +5 | +5 |
| Normal market size: | 1,500 | |||
| Beta: | 0.48 | |||
*Includes intangible assets of £99m, or 123p a share **Numis forecasts, adjusted PTP and EPS figures | ||||
However, trading at Johnson Tiles remains difficult. And following restructuring in 2017, a fresh overhaul of the operation at a cost of £2.1m has begun, partly caused by the diversion of social housing budgets towards cladding issues in the wake of the Grenfell Tower disaster.
Trading in South Africa has been steadily improving, and tile plant capacity has recently been increased by 10 per cent to meet demand. However, currency weakness has weighed on first-half performance.
Norcros operates in what remains a highly fragmented market, in which it has a share of around 7 per cent. This gives it plenty of room to grow, and where it excels over its smaller rivals is the rate of investment in research and development (£50m over the past five years).
Net debt at the half-year was up from £20.8m to around £54m, after £60m was spent on buying Merlyn, supplemented by a £31.4m placing. There is also a £48m pension deficit, but cash conversion is good.
