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This started to move. Nice gain so far
Adj EV is £200m now (incl lease liabilities)
Adj EV (incl pension deficit) of c £200m
EBIT c£30-35m
EV/EBIT of 6-7
Well we have had a great run over the last few years.
Part 2
Pension Scheme
==============
The strategy of growing the business by acquisition has been justified in the past partly to balance the size of the business versus the pension scheme.
This time last year the pension scheme had liabilities of £448m and an accounting deficit of £48m (compared to Norcros’s market capitalisation of around £160m). This was down from the previous year and my modelling show it should be down again this year, maybe to around £35m, although this is very sensitive to the assumptions they choose to use.
The triennial actuarial valuation and outcome of the pension trustee negotiation is due around now, and could possibly be mentioned in tomorrow’s preliminaries. Unfortunately this valuation is at an effective date of April 2018 when the deficit was slightly higher than three years before and furthermore the accounting and actuarial assumptions used last time were unusually similar. It is likely that the triennial valuation will produce a higher deficit, potentially significantly so – my modelling shows £75m – £100m vs £73.5m last time. At the upper end of this range the trustees are likely to demand increased recovery payments and perhaps restrictions on dividends. It is also possible that the pension protection fund will require higher premiums than last year, given their higher debt levels.
Trading Statement
=================
They last updated the market with a FY trading update on 10th April which I briefly covered on my blog. Like-for-like UK had recovered from the first half and South Africa continued to grow well, albeit suffering a currency hit. Due to a recent acquisition they reported revenue to be 10% ahead overall, guided profit inline and debt reduced.
Conclusion
==========
This is a financially geared business which could be disproportionately affected by a turndown in trading. Tomorrow I will primarily be focusing at their outlook statement, but also ready to react to any news on their pension or further acquisitions.
I posted this results preview to my blog earlier:
Norcros are due to issue their full year results tomorrow. As this is a top 5 holding I expect to be covering them in tomorrow’s 7:59 cut.
Background
==========
Norcros describes itself as a “market leading supplier of high quality and innovative bathroom and kitchen products”. UK / Irish brands include Triton showers, Merlyn shower enclosures / trays, Vado taps / showers, Croydex toilet seats / bathroom furnishings, Abode sinks and taps, Johnson Tiles and Norcros title adhesives. In South Africa they own some physical showrooms as well as supplying tiles and tile adhesives. The revenue and profit split is 2/3rds UK, 1/3rd South Africa.
Business has generally been going well the last few years with underlying profits growing and a series of acquisitions. Risks are exposure to consumer spending, the construction cycle, South Africa and volatile currencies, plus significant levels of debt and a large pension scheme that is in deficit.
It is perhaps understandable then that they are valued at a PE ratio of under 6 despite good medium / long term EPS growth.
Debt
====
The company follows a pattern of progressively reducing debt to a comfortable level and then making an acquisition, that although on a relatively cheap valuation, struggles to add value to shareholders because it must be funded by shares issued at a lowly rating and/or debt that reduces Norcros’s rating further. The most recent acquisition was funded by a mixture of debt and a placing / open offer at 172p.
Debt has moved as follows recently (compare with market capitalisation of around £160m):
£m Note
Sept 2017 20.8
March 2018 47.1 Increased due to acquisition
Sept 2018 53.5 Seasonal increase
March 2019 36 (Guided)
Accordingly they could probably pay off debt (at least at year-end) within three years if they wanted to. However this is unlikely to happen as they have set themselves a strategic target to double revenue within 5 years.
Pension Scheme
==============
The strategy of growing the business by acquisition has been justified in the past partly to balance the size of the business versus the pension scheme.
This time last year the pension scheme had liabilities of £448m and an accounting deficit of £48m (compared to Norcros’s market capitalisation of around £160m). This was down from the previous year and my modelling show it should be down again this year, maybe to around £35m, although this is very sensitive to the assumptions they choose to use.
...
Norcros should benefit from better sentiment in South Africa, one hopes.
Now looking to get past 197. Not so easy.
Since Nov 2016 the market has said if you reach between 180-189 we'll sell off. Is that point nearing an end after its 5th test of resistance today?
Yep - bottom of current trading range which has a slight suggestion of being a rising channel anyway. Happy with todays sojurn into this sort of offer -this one looks like it's worth a gamble but best to wait to see what the price is doing nearer the time methinks (17/11).
Norcros has been in the wilderness for four years. Now, it looks like making a comeback. Here are some thoughts on the trading update. At �1.76 per share, Norcros is an interesting company because the valuation looks insanely low. Half-year results showed a big improvement, with revenue growing by 12.5%. Their South Africa division grew by 21% helped by their currency. There has been no mention of profits. I expect South Africa will deliver higher profits, due to favourable currency movements. But, it only contributes 35% of pre-tax profits. I�m concern about their UK division whether reported sales growth of 8.4% has offset greater than expected rise in UK costs. Valuation Forecast for normalised EPS in 2018 and 2019 is 28.5p and 30p, giving it forward-PE of 6.2 times and 5.8 times, respectively. The market capitalisation is 30% below 2013�s peak, despite net cash from operations at a record high of �23m vs. 2013�s �5.6m. It is currently paying 4.5% in dividend yield, despite the payout ratio being around 35%. Dividend is growing at 10%. Final thoughts I like this company and would invest at this level. But given my 30 minutes� analysis, I urge you to DYOH! If everyone checks out, I can�t see why you shouldn�t buy this share. You want to read more about companies releasing their results today, then click http://bit.ly/2yiGpUt
Positive update today, but the market doesn't seem to "like" Norcros and it remains under 185p.
If it can break 185p, then there's legs in this share. For now it's in a lacklustre pattern which started in January 2014.
seams the pension deficit is the main concern company seems to perform well in south Africa as well otherwise definitely value here imo
One misconception investors or analysts think is the company paying off its debts. (the latest results show restatement) In reality, it is a little more complex. The traditional net debt measure saw Norcros it tumbled from £155m in 2005 to £23.2m. The more hardworking investor would measure net debt the following way: On the Debit side: - Cash, trade receivables and pension surplus. On the credit side: - Total debt, finance lease, trade payables and pension deficit. On that basis, Norcros saw net debt decreased from £150.8m to £99.8m. Here is the chart comparing both net debts: http://bit.ly/2tl18S6 Here are four more factors why investors are shunning Norcros here: http://bit.ly/2szfSQl
holding...??? some nice buying today here, small amounts but i think buyers will takeover pre resutls ???
More likely that the experts have been recommending a little too much. Look at the graph over more years - the price trend is still down; this is a blip.
I imagine with the new builds planned by the Government, there will be many new bathrooms fitted, a market that's increasing always benefits the bottom line for firms like Norcros or else it attracts predators!
From a low of 137p on 18/10/16 suddenly this week gone ballistic-bid possibly?????
Hi - does anyone have any news on this share? I've held it for some now and there seems to no good news ahead...
Any comments on the big sells?
Had a change of heart and decided to sell my (relatively small) holding at essentially break-even. This is because of the deteriorating situation in South Africa, The weakening of the rand has accelerated since the September interims, and yesterday got a lot worse after the unexpected sacking of the South African Finance Minister: Http://finance.yahoo.com/echarts?s=GBPZAR=X&t=5d&l=on&z=m&q=l&c=#{"allowChartStacking":true} Plus confidence in the SA economy has worsened considerably given the rout in commodity prices, which may accelerate a decline in consumer purchasing there. Other SA-biased stocks got hammered yesterday. NXR may or may not also come under a little pressure. Good luck all.
RNS - good news, with Fidelity buying more and now with over 6m shares, or almost 10% of the company: Http://www.investegate.co.uk/norcros-plc--nxr-/rns/holding-s--in-company/201511300924383327H/
Edison's new report has "increased current-year EPS estimates by 6.7% and by just over 2% in both FY17 and FY18". They now go for: this year : 21.1p EPS, 6.4p divi next year : 22.6p EPS, 6.8p divi Http://www.edisoninvestmentresearch.com/research/report/norcros7 Conclusion: "Valuation: Good value and potential for more Following our increase in estimates, Norcros’s P/E multiples are now in single digits in all three forecast years. With a three-year EPS CAGR of 11.1% the company’s PEG ratio is 1.0x. In EV/EBITDA terms, an FY16 5.7x multiple reduces to 4.5x by FY18 on our estimates (after adjusting for pensions recovery cash). Business performance is good and if Norcros can further supplement this with more acquisitions, the above multiples could turn out to be significantly lower at the current share price"
lifted by trade buying Norcros lifted by trade buying of bathrooms November 13, 2015 10:50 pm http://www.ft.com/cms/s/0/cc6b47b2-8a43-11e5-90de-f44762bf9896.html#axzz3rSAr598I