Thursday, June 21, 2012

Norcros (NXR) Results

Good morning. There was no Blog post here yesterday, as there were no company results of interest to me. I did however spend most of the day analysing Home Retail Group (HOME) and drafting a report on that, which will be published here later today when it's finished. As usual I will Tweet when publishing any article, so if you don't already, please follow me @paulypilot on Twitter to get those alerts.

FTSE100 Futures are down about 23 points at the time of writing, so a soft opening likely.

Results from Norcros (NXR) caught my eye this morning. It is a group which has activites in the UK and South Africa, making Triton showers, and Johnson Tiles, plus other tiles and adhesives businesses. So fairly dull, but cyclical activities.

I liked the results this morning, and the shares really do look cheap to me, but as usual, DYOR.

Mkt cap £64m (11p * 580m)

Here's a quick snapshot of the results issued this morning (copied from the results RNS);

"Financial Summary

(52 weeks)
(53 weeks)
% Change as reported
% change LFL weeks** and constant currency
Underlying* operating profit
Underlying* profit before tax
Profit before tax
Underlying* earnings per share
Dividend per share

    *Underlying is before exceptional items and where relevant, before non cash finance costs and after attributable tax
**Adjustment to the previous period which covered 53 weeks compared to 52 weeks for this period


·    Group revenue increased by 5.6% on a constant currency like for like number of weeks basis
·    Group underlying operating profits increased by 5.7% on a constant currency like for like number of weeks basis
·    Exit of onerous legacy lease at Springwood Drive, Braintree at a cost of £7.8m but saving £3.3m per annum in future years
·    Completed bank refinancing, securing £51m bank facility on improved terms until October 2015
·    Sale of surplus land to WM Morrison Supermarkets plc subject to successful planning application for approximately £2.6m
·    The Board is recommending a final dividend of 0.28p per share in addition to the interim dividend of 0.14p per share, making a full year dividend of 0.42p, a 16.7% increase on last year"

So we're looking at a PER of only 5.8, which seems excellent value to me, given that profits have risen usefully - although the 25% increase in profit before tax appears a red herring, since the main driver appears to be a one-off pensions credit. So focus on the 5% increase in underlying profits (8% at constant currency) - a solid performance given difficult economic conditions.

Dividend yield is 3.8%

Outlook statement is pretty solid too;

"Summary and outlook
Group revenue in the first two months of the current year is in line with expectations. Johnson Tiles UK and South Africa have started well, but Triton has been weaker.
Our businesses continue to trade robustly in uncertain markets and management will continue to drive the self help strategies that have proved successful over the last two years. The strength of our brands, our market positions, our customer relationships and the encouraging operational improvements in the latter part of the year in both the South African and UK tiles businesses gives the Board confidence that unless markets deteriorate further, our businesses will continue to make progress in the coming year."

Net debt rose to £17.8m, but the increase was driven by a one-off £7.8m charge from an onerous lease surrender, but this will benefit future cash costs by £3.3m p.a.
There is a pension fund deficit which rose from £7m to £18.7m unfortunately, although the size is reasonable compared with the size & profitability of the business. As with most other pension schemes, the deficit widened significantly due to the present value of liabilities being enlarged due to a lower discount rate (linked to lower corporate bond yields, itself driven by lower Gilt yields & QE). Arguably then this is a transitory factor, and the deficit could melt away once interest rates normalise. Or it might not, we don't know for sure.
Bank facilities were refinances in Sept 2011 and look adequate, and charged at only 1.5% over LIBOR, which seems reasonable.

Overall then I like these results, and believe there's good upside on this share - it's cheap even in a weak economy, so once you factor in some economic recovery, then earnings could rise nicely. With a long-term view, it's not difficult to imagine these shares doubling from the current price.

Additional note:

Norcros FD has just bought 300,000 shares at 11.958p each;

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