Following a temporary shutdown of facilities at the end of March, Epwin has been reversing this process which is expected to complete in the next week with all main sites operational by then. The next phase will depend on the rate at which demand returns in the company’s product space. Previously announced actions have contributed to a stable funding picture with core net debt at the end of April – the first full month of the coronavirus impact – unchanged from the end of March. Our estimates remain suspended for now.
Post Epwin’s FY19 results and last trading update, the UK government began to ease lockdown conditions in the second week in May and the company, along with its sector peers, has gradually resumed operations. Having re-established product availability, it then restarted extrusion lines and began re-opening distribution depots. This phase – covering all remaining sites – is expected to conclude in the next week. Accordingly, Epwin is set to further reduce the number of furloughed employees (which had peaked at c 90%). The business typically runs with a relatively short order horizon and so the next step up in activity levels will be informed by new business, customer intentions and perceived ongoing order levels.
Recent trading is already faring better than the ‘worst case’ version (ie zero sales for six months). Encouragingly, end April net debt remained at end March levels (c £30m) so Epwin retained c £45m headroom under existing facilities and continues to look financially robust as sales recover. The receipt of UK government furlough monies (starting in April), a good receivables performance and perhaps some inventory reduction will have contributed to this outturn. We acknowledge that a stronger ramp up phase is likely to require some cash absorption – especially working capital build – but otherwise the aim will be to match resources to prevailing business levels with an eye to expected order intake.
The key long-term macro drivers for Epwin’s revenue development (ie UK population growth and an ageing housing stock) remain very much intact in our view. The currently subdued housing transactions and rising unemployment rate are a near-term consequence of the coronavirus pandemic and will impact consumer sentiment. An optimistic view might be that lockdown has lifted home improvements further up the agenda; the rate at which consumer sentiment recovers will be an important marker of improving demand we believe.