Norcros Share Discussion Threads

[1fox1] 15/6/2017 10:11

I too have been invested for the last three years. Very frustrating stock to hold. One step forward then one step back. Hopefully may see a re-rating soon. In the meantime at least it's a decent divi

[edmundshaw] 15/6/2017 09:33

Thanks AB. Now I am sure your kitchen needs tiling too... :)

[jg88721] 15/6/2017 03:09

thanks Andrew, good post. Yes, Johnson Tiles looks like the culprit. I guess it's just gross margin decline in Johnson because its YoY revenue performance was not that bad. It's such a big part of the business - hopefully the restructure, and whatever other steps are taken, can get it moving again.

Nick Kelsall is confident too. GLAH

[maurillac] 14/6/2017 22:58

Yes a good thread when it gets going here. Will keep nxr on my watch list for now, who knows I may be tempted back in at some point
Atb
M

[edmundshaw] 14/6/2017 22:09

Always good to have discussions - at the very least it encourages us to check our facts and suppositions. Good board.

[jg88721] 14/6/2017 21:37

Hi Andrew Byles
thanks for linking to that Presentation, which is interesting. The bridges on page 6 neatly illustrate my point about UK business operating performance. UK revenue up 19.3m pds, but operating earnings up only 0.2m pds. Hmmmm.

I've yet to see an explanation of what has been happening with UK costs and why mgmt. has not been able to achieve higher earnings in the UK given the good revenue performance. Any theories as to which cost categories have done the harm? What might happen to UK earnings in FY18 if revenues were flat?

The pension slide is good too. and the graph very nicely illustrates how that deficit is the small difference between two very large numbers. The liabilities number is very affected by the discount rate; but what about the potential variability in scheme assets (eg, share market slump; bond yield increase reducing bond values). A bid increase in yields might reduce liabilities, but what would the value of the assets fall more or less?

GLAH

[nigelmoat] 14/6/2017 21:18

Could this be an undervalued takeover target? Shaun Smith theGroup Finance Director joined Norcross last year previously working at Aga Rangemaster who were taken out at a significant premium. Coincidence or part of his agenda to deliver elusive value?

[jg88721] 14/6/2017 20:34

good posts Charlie and spooky, which I agree with. (I add pension deficit to debt, simply to be conservative in assessing company's ability to meet its obligations(margin of safety and all that), but I agree it's a very different obligation.)

Maurillac, as Walbrook sought to outline, there are many reasons why the market may be a little wary of NXR, and many of those reasons remain issues. But so long as the company keep kicking goals, and the results show they've kicked a few (and with more coming), I remain patient (and well diversified).

GLA

[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...