Margin progression, cash generation and dividend growth – as well as a material, post-period-end acquisition – were all notable features of H1 26. A sharpened and connected business portfolio with leading market positions, clear strategic growth drivers and demonstrable results are together delivering above sector performance against a generally subdued economic backdrop. The foundations are in place to continue to capture market share in a more favourable cyclical environment, though this is not currently factored in.
The acquisitions of Merlyn (FY18), Grant Westfield (FY23) and now FIBO (FY26) added scale businesses with strong brands and market positions with sustainability drivers, fitting with other group companies in the core bathroom products market. Having also exited weaker brand/capital-intensive tile manufacturing operations in the UK (FY24) and South Africa (FY26), Norcros has undertaken a significant business re-balancing. Noting that the group DB pension scheme is now almost fully funded, we suggest that greater emphasis on the group’s progressive strategic ambition will come more to the fore and drive investor sentiment.
Pre-close guidance gave an accurate steer on H1 26 results, which contained outlook comments in line with current market estimates. Given unhelpful conditions generally, progress (EPS +11%, DPS +5.7%) was hard-won. In our view, this has flowed directly from strategic actions. Specifically, rolling out new product development across the group has facilitated market out-performance, supported by supply chain and service collaboration, together boosting UK margins. The driver for selective alignment of warehousing and distribution activities has been to improve operational excellence to reinforce market positions (sustaining high service levels and creating growth headroom) rather than a cost reduction agenda in challenging markets. Positive cash generation in the first half and existing banking facilities mean that the post-period-end £46m acquisition of FIBO can be readily accommodated.
The company’s share price has performed well YTD (+c.18%), c.5% ahead of the FTSE All-Share Index and comfortably ahead of most of its sector peers. However, the re-rating has been minimal due to the earnings-enhancing FIBO deal. Closing sector peer discounts and realistic DCF profit assumptions both support higher valuations for Norcros. Taking an average of these two methods generates our increased fair value of 397p per share.
