Norcros Share Discussion Threads

[edmundshaw] 14/6/2017 14:30

Sorry to see you go maurillac. Yes, the market can be slow to rerate shares, but usually it gets there in the end. Hope you come back at some point...

For what it's worth, I actually added to my holding after the initial enthusiasm sold off a bit.

[maurillac] 14/6/2017 13:33

yes its so very frustrating. everything suggests that this share price should have some way to go but i am sick of the repeated poor market reaction to results, fundamentals and rns`s so i sold mine today - made 16% inc divis, which was less than i expected when i bought in back in 2014. however my feeling was that todays rise will soon evaporate so i took the view that a profit is only a profit when its banked !
good luck to those still holding ..
m

[touche] 14/6/2017 13:22

What does this share have to do in order to rise? 8 consecutive years of delivery, more to come and mr market not even able to sustain a 3.5% rise!

[spooky] 14/6/2017 10:57

If the discount rate rises by 1%, yes 1%, the deficit vanishes.

[loganair] 14/6/2017 10:43

By Rupert Hargreaves:

Shareholders of Norcros (LSE: NXR) have had a tough time over the past 12 months. Following the Brexit referendum 12 months ago, investors bailed out fearing the worst for this home products company. As many economists were predicting an economic crash following a 'leave' vote, Norcros seemed to be in the firing line.

However, 12 months on and the firm appears to be suffering no ill effects from Brexit just yet. Today the company reported its results for the year ended 31 March and the referendum is only mentioned three times in the release. Revenue for the period grew by 15% on a reported basis to £271m, and underlying profit rose 11.7% to £23.8m. Operating cash flow jumped by 46.1% to £29.8m giving management headroom to reduce debt by 28.6% from £32.5m to £23.2m and hike the company's full-year dividend payout by 9.1% to 7.2p from 6.6p. Even after this hefty increase, the payout is still covered 3.9 times by earnings per share.

Growth ahead:

Norcros is rapidly closing in on the growth goals management set out several years ago. Management is targeting revenues of £420m by 2018, and a pre-tax return on underlying capital employed of 12% to 15% over the economic cycle. ROCE is currently ahead of target and has been for the past two years at 18.4%, but revenue is still lacking.

Excluding the negative impact of the South African rand's depreciation against the pound, revenue for the year to 31 March would have been £304m. Still, even though the company looks as if it may struggle to meet its growth objective, management remains convinced that it can find opportunities to accelerate it over the next few years.

And if Norcros does not meet this aim, the shares still look incredibly cheap based on current earnings. Today the company reported underlying diluted earnings per share of 27.8p for the year to March giving a historic P/E of 6.3. Even if we assume no earnings growth for next year, a mid-single digit P/E looks too hard to pass up. A payout of 7.2p gives a yield of 4.1%.

[charlie] 14/6/2017 10:31

Sorry for repeating everyone else, slow writer here!

[charlie] 14/6/2017 10:29

A pension deficit is qualitatively very different from bank debt. I would not add bank debt and pension deficit in the way Walbrook suggests.

The pension deficit has to be funded eventually. But the central forecast is that it disappears over 10-15 years if the company pays the extra contributions of £2.5m pa it has agreed with the trustees.

Even if you don't believe that forecast, and think it will cost the company much more than the agreed extra contributions to fund the pension deficit, the company can do this in its own good time. Maybe it will end up needing to to pay £5m pa for several years, instead of £2.5m pa. But the pension deficit cannot crystallise suddenly like bank debt (say because bank covenants are breached in a recession).

[spooky] 14/6/2017 10:24

The pension deficit would not simply reduce if gilt yields were to move to normal levels, it would actually move into surplus. That's what makes constructing a valuation model based predominantly on the current pension fund deficit so farcical. Everyone will start buying the shares as soon as they have some momentum and they will forget about the deficit all together.

[jg88721] 14/6/2017 10:15

interesting note Walbrock82. thanks for highlighting.

I include pension deficit in my own analysis of net debt, but I don't agree about including trade payables (and trade receivables). Trade payables are not interest bearing, and so long as a business does not shut up shop, you pay one months accounts and borrow next months, so they're not really (hard) debt at all. Ie, you never have to stump up all the cash to repay these!

Its also not apparent that the pension deficit will have to be funded from operating cash flow - contrary to your assertion. Surely, that will depend on how the scheme liabilities change over time, and how its assets perform. Clearly, there is the potential for a large cash flow requirement, but if gilts were to return to more normal levels, then the deficit would further reduce (witness today's re-estimate of the pension deficit from that at the interims), and so would any future funding obligations. (The company keep insisting they know their pension obligations for the next 10 yrs, 2.5m pds, but I'm a little leery of placing too much reliance on that).

[edmundshaw] 14/6/2017 10:11

If you include the vagaries of the pension deficit (or its proxy bond rates), you will get a picture which doesn't really describe the underlying position. If you also ignore cash raising and acquisitions, I am not sure what you are trying to demonstrate.

[spooky] 14/6/2017 10:11

walbrock82 - Your analysis totally revolves around the pension fund deficit, can i ask you what would happen to the deficit and your calculations if interest rates on long term assets rose by 1.5%?

[loganair] 14/6/2017 10:04

In my opinion these results were Neutral, neither positive nor negative, were neither good nor bad, they are just Alright.

[walbrock82] 14/6/2017 09:49

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:

Here are four more factors why investors are shunning Norcros here:

[edmundshaw] 14/6/2017 09:35

Should really see this well over £2 now. Even £2.50 seems pretty good value...

[jg88721] 14/6/2017 09:34

thanks FredFishcake! no elsa, mine wasn't from fincap, was straight from the previous trading update

Good half again from South africa, but UK underlying earnings were a little disappointing for mine. I thought UK could/should have been closer to 10m for the second half. And with the african earnings now getting a full whack of the higher south african tax rate, growth there is less valuable than UK growth.

From a quick scan, little explanation of the big pension reversal - they didn't state the actual discount rate used but presumably it's back to near where it was in last years annual report. So the interim estimate is just a noisy aberration?! But indicative of how big NXR's pension scheme is.

A lot of moving parts in the results, and a lot of discussion of revenue changes - but a lot less on margins - but other than that I was pleased. Good cash flows too.

Onwards and upwards. GLAH

[elsa7878] 14/6/2017 08:41

Definitely.

Seems every dog on the stock market bar this has been re-rated and this is no dog.

Cape (CIU) was unloved and had a huge legact issue. Decent results and went from 170 to 250 (back to 200 now.

This just has the pension issue - aside from that it is churning out cash - op cashflow £30 million - market cap £110 million. Crazy.

[che7win] 14/6/2017 08:25

Impressive results, undervalued at this price.

[elsa7878] 14/6/2017 08:19

Not really, He just regurged the broker note from Finncap.

[fredfishcake] 14/6/2017 07:52

Impressive forecasting from jj88471 a few days ago!

[kazoom] 13/6/2017 16:09

Talking of interesting share price movements in advance of results ........

[betman] 12/6/2017 13:49

Thanks Andrew. I hadn't spotted that pre results trend, hopefully the results will be better than anticipated in the Trading update. The Trading update accounted for the strength of the Rand so guess that's already baked into the current SP