Norcros’s H118 pre close update flagged group revenue and EBIT in line with management’s full year growth expectations. The period end net debt figure – after some exceptional costs – was also where we expected it to be. Both divisions are achieving good revenue growth without much help from their respective markets and profitability should follow. The rating is yet to give credit for the achievement of this self-generated progress.
Weak prior year comparatives helped FY18 to get off to a very encouraging start. Year-on-year UK revenue growth figures are expected to taper down as these effects work through and Q118 +10.9%, H118 +8.4% reflect this. Markets overall remain competitive; sector trends appear to be as before with trade/new housebuilding firm, retail subdued and export momentum improving. Individual company performance reflects channel exposure but selective market share gains are also being achieved. Earlier price increases have held and, taken together, the headline revenue progress looks to be fairly broadly based though we do expect to see variation in operating company performance when the H1 results are announced. The operational changes at Johnson Tiles (re-configuring the second kiln, having mothballed the third) are proceeding to plan
Sales momentum gathered further in Q2 as seen in the improvement in y-o-y SA revenue growth from +3.5% in Q118 to +4.8% in H118 in local currency. JTSA is effectively at capacity as currently configured so has volume constraints, so this is a good performance. Tile Africa’s showroom upgrades in recent years are proving beneficial and contributing to an improving mix of bathroom line revenues sales. Retail progress also pulls through products from JTSA and TAL Adhesives locally and utilises the group supply chain on other items. Selective expansion remains the strategy in this division and there are opportunities for each of the three local companies. The y-o-y FX translation benefit to revenue was c 16% in H118; H2 rates to date are in line with H217.
Save for a short dip around the end of March, the Norcros share price has largely traded in the 160-180p range ytd. It now sits just above this range having reacted positively to the pre close update and is back to start of year levels. However, the FY18e P/E remains in single-digits at 7.0x with further earnings growth to come. The trailing dividend yield is already a respectable 4.0% and is expected to increase in line with earnings.