Norcros Plc (LON:NXR): An in-line year end update pointed to an improved H2 trading period for UK based operations and good ongoing progress in South Africa. Full details on underlying profit trends will come with the FY17 results but we feel that the business is performing well in its markets and this is not being fully reflected in the company’s valuation.
UK bounces back, South Africa progressing well
The FY17 trading update indicated group revenues of c £271m for the year, with a useful breakdown (actual, constant FX and LFL) of how this was achieved. The group figure is slightly above our estimate and existing UK operations (before acquisitions) appear to be the driver. H117 was a comparatively tough trading period for these businesses so the second half bounce back (LFL: H1 -5.0%, H2 +8.3%, FY +1.8%) is encouraging. This is clearly ahead of underlying RMI spend patterns and we understand that more regular demand was seen across most UK channels with a better export picture also. Acquired UK businesses also performed well. We note that the well-publicised economic challenges in South Africa have not affected trading and LFL progress remained very healthy (H1 +10.0%, H2 +7.0%, FY +8.4%). The average £/rand c 18.0 for the year was also in line with our model. Group net debt at the year-end was c £24m (vs our c £27m estimate).