Norcros Share Discussion Threads

[norcros] 14/11/2017 16:40

Norcros is worth much more than 220p. Just be patient and collect the (rising) dividends. As for the price of the open offer, it doesn't really matter. Yes the discount could have been larger, but then they would have had to issue more new shares to end up with the same £30m. A larger discount is not a reward; peculiar way of looking at it.

[1fox1] 14/11/2017 16:11

Hope you have plenty of patience matey. You'll need it

[robsy2] 14/11/2017 16:10

I am in . The valuation surprises me, see analysis from Edison. it ticks a lot of boxes.I have had a good look and can't see why it's so lowly rated..... They have a clear plan , seem to be executing it well , cash flow is excellent,the dividend is quite attractive and 3.5 covered.The South African business has potential. the pension is a worry but looks manageable esp with interest rates increasing and the age of the members is high so that's looks ok.as norcross has said previously. Can UK consumer spending hold up ? I don't know, but it can't just fall off a cliff . people need showers , shower blinds , people move , new builds are on the increase,things wear out,they need adhesives, tiles etc.
They leverage their distribution with every complimentary brand purchased and have the ability to sell direct.
Looks like a well run company to me,the directors have put their hands in their pockets for the Merlyn purchase.
I'm in and looking for 220p+ within the next few years.
R2

[1fox1] 14/11/2017 10:20

What's the point in buying into a no discount share offer. Especially one as boring as this one. Gone nowhere for years and years

[xxx] 14/11/2017 00:30

The answers they give are fine, but dont give me a feel for where and how.
The reasons for the segment growing are dependent upon extrapolation of consumer spending, which looks questionable in the Uk.
It would be more reassuring to hear that this is an poorly addressed segment in country x where Norcros has strong distribution skills, in addition to the general attractions of the business.
Just my [overweight] views.

[xxx] 13/11/2017 02:48

This acquisition does seem to have high margins and the management are keen on it, but I cannot locate a moat which will preserve these margins and allow the company to maintain its profitability, let alone grow with what I am assuming are broader distribution channels.
I do wish management had spelled out their vision of how the co will benefit the group in the future.
As Jeff Bezos once said “Your margin is my opportunity”.

[edmundshaw] 12/11/2017 22:53

Thanks loganair

[loganair] 12/11/2017 17:01

IC are saying Accept the Open Offer.

[edmundshaw] 10/11/2017 16:10

Being honest, as a company I see Norcros as historically a pretty average consolidator. It has not made any obviously bad decisions, but has hardly made brilliantly priced acquisitions in the past nor run off buckets of cash from synergies and cross-selling.

However I am invested here. Firstly, however ordinary performance might seem, the company is undeniably very cheap, and with a useful dividend to soften the need for patience. Second, this latest acquisition, unlike some previous, is quite bold, and I think there is very good potential in it.

I agree the pension deficit may be one reason for the low rating, and that looks to be an issue that is likely to become historical as rates finally rise. For number-crunching ratio junkies, there are a few ratios that are going to be improved a lot by that. I want to be in here before them!

[grahamburn] 10/11/2017 15:08

That blog is also a touch out of date (ie it was written in June on the day of the last results statement, so would be worth re-reading after seeing next Thursday's results.

It does, however, make some valid points, though by coincidence in the past couple of days I have read a few of that blogger's analyses, all of which have been of the negative regardless of company or sector.

IMO the new deal seems to be a worthwhile one as it fills a gap in Norcros's product range as well as taking onboard a fast growing and profitable enterprise which may benefit from Norcros's broader geographical spread.

Personally, though the Open Offer seems a no brainer, I intend to wait until reading next week's results before making a final decision on the extent of my participation.

[norcros] 10/11/2017 13:32

Value investing involves a lot of patience, fox. It would be a shame to see you run out, because I believe you've picked the right company.

I strongly recommend you to look at the FCF Norcros generates; we're talking hard cash here, used to finance acquisitions, pay dividends and pay down debt. The article disregards FCF completely.

Regarding the "Growing pension deficit":
Actual cash outflow is stable at £2.5m. The volatile current value of future pension obligations in the balance sheet is of little importance. The pension deficit has only grown because the discount rate has continuously dropped (see ). As I stated in my previous post, the pension dificit will ultimately resolve itself.

The "Share Price Forecast" seems based on... nothing at all. I think the author is just randomly picking numbers here. He is not looking at FCF whatsoever.

Do your homework, and act accordingly. You know where I stand.

[1fox1] 10/11/2017 08:52

LBO Thanks, that's it's quite interesting. I'm loathe to stick more money into this company having been stuck with it's stagnating share price for the last four and a half years. All as I can say is it's a good job they pay a dividend. My average is 180p. Four and a half years of going nowhere

[1fox1] 08/11/2017 15:39

Graham well it's only reasonable isn't it? Good luck :o)

[grahamburn] 07/11/2017 20:01

Point taken and you may well purchase at a theoretical lower price (discount) but that may just be because there will be an increase in the number of shares in issue after the open offer. Indeed, it's equally possible that as the open offer price was priced at a very small discount to the then market price, that indicates to me that the board are confident in the probable take up. That in turn may well mean that the ex-open offer market price may well hold up.

However, whatever your (reasonable) holding if you wait until after the open offer, you'll be diluted compared to those who take up their basic entitlement. Similarly, a purchase in the future may not qualify for the interim dividend to be declared next week. Neither of these may be a serious consideration.

All-in-all, I would tend to loganair's view and will seriously consider increasing my pro rata percentage holding in the company by applying for a reasonable(!) number of excess shares.

In short, the takeover and the subsequent prospects for the enlarged business are, INHO, reasonably(!) positive.

[1fox1] 07/11/2017 19:10

Yes but I would want a better discount to buy more. Already hold a reasonable amount as it is

[grahamburn] 07/11/2017 17:38

As well as not paying stamp duty and dealing costs on either the basic entitlement or any excess applied for.

Every little helps.....

[loganair] 07/11/2017 16:50

It maybe a good idea as one would be buying the shares to aid Norcros take over another company rather than taking on more debt or because they are in financial difficulties.

Also it gives one the chance to buy an extra few shares if one wishes not to take up ones full allotment.

[1fox1] 07/11/2017 16:12

Can't see the point. The share price is at 172p now :o(

[edmundshaw] 07/11/2017 13:00

I notice that the choice to take up the open offer expires on results day (with my broker anyway). Although we know that the results will be good, there is still the commentary, details and outlook. Ideally I intend to wait for that day, the 16th, to decide on whether to take up the offer...

[norcros] 05/11/2017 10:22

Too much importance is given to that pension deficit. Because of the annual cash outflow of £2.5m (which can easily be financed from FCF and is already included in my numbers), rising interest rates and the scheme being extremely mature, the problem will solve itself. What scares investors is the volatile current value of future pension obligations in the balance sheet, which fluctuates wildly according to the discount rate. That however is of little importance. What matters is the actual cash outflow and like I said, this outflow is very manageable.

[edmundshaw] 04/11/2017 15:08

I agree with nor and Andrew. Looks like a good acquisition. Plenty of scope to extend the sales regions, a good margin and, given the growth in Merlyn to date, not really expensive, as it is fair to value the acquisition as a growth company, not purely on past profitability like a mature business.

[norcros] 04/11/2017 11:00

Don't you think management deserves some credit after their succesful M&A activity in recent years? Because I do.

I've been accumulating shares in NXR since August and will subscribe to the open offer. Norcros is dirt cheap and sooner or later, the share price will rise considerably. I'm looking at a fair value of at least £3.3, with further upside following additional acquisitions and organic free cash flow growth. Yes, the price is a little steep. The fast growth (CAGR of 20% between 2015 and 2017) and much higher margins of Merlyn obviously played a role in this. Importantly, only half of the acquisition price will be paid with new shares. The other half will be financed with cheap debt .

Merlyn generated a free cash flow of £4.5m in FY2017, and that free cash flow is rising fast, much faster even than revenue growth.

At the end of FY 2018, the combined company could have an enterprise value of £185m (£140m market cap and £45m in net debt). With conservative free cash flow in FY18 at £22m (17+5; we'll know more on 16 November), the company would trade at a cash return of 12%. Just sit tight is my advice.