Sound H116 progress
In H116, Norcros Plc (L:NXR) has seen good revenue progress from both divisions and we expect to see higher profit when results are reported on 12 November. In addition, we expect further y-o-y progress in H2 and full year expectations are unchanged. Our recent initiation note highlighted growth aspirations, which are yet to be reflected in the share price.
Plenty of positives in H116
The H116 pre-close IMS confirmed that good group progress has been made, in line with existing full year expectations. Existing UK operations achieved 1.8% topline growth, with a firm trade sector (which should benefit Vado and Norcros Adhesives in particular) continuing to carry still patchy retail demand. There was also a c three month contribution from Croydex (implicitly approaching £6m revenue) lifting total UK revenue growth to 9.8%. We believe the trade mix and acquisition effects, together with improved Johnson Tiles UK operating performance, should result in y-o-y EBIT margin progress in the first half. In South Africa, strong revenue growth (+16.9% y-o-y) was partly diluted by rand weakness, but still a very healthy +8.4% in sterling terms. We would expect all three constituent businesses to have contributed to this performance, with higher volumes and better Johnson Tiles SA operating performance also resulting in y-o-y EBIT margin progress. Norcros ended H115 with £29.5m net debt, c £15m above the year-end level. Allowing for c £20m Croydex cash consideration, we believe that improved profitability drove a y-o-y improvement in free cash flow in the period.
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