Epwin Group — Update 7 January 2016

Epwin Group (AIM: EPWN)

Last close As at 28/03/2024

GBP0.77

1.50 (1.99%)

Market capitalisation

GBP108m

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Research: Industrials

Epwin Group — Update 7 January 2016

Epwin Group

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Industrials

Epwin Group

Stormking – another earnings-enhancing deal

Acquisition

Construction & materials

8 January 2016

Price

141.75p

Market cap*

£201m

Net debt (£m) at end June 2015

2.2

Shares in issue
(*including new shares)

141.5m

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.1

2.9

46.1

Rel (local)

16.8

8.5

53.6

52-week high/low

147.00p

84.00p

Business description

Epwin supplies functional low-maintenance exterior PVC building products (including windows, doors, roofline and rainwater goods) into a number of UK market segments and is a modest exporter. It has a vertically integrated model in windows and doors and a leading market position in roofline products.

Next events

FY15 results

April 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Epwin Group is a research client of Edison Investment Research Limited

Epwin has announced its second earnings-enhancing acquisition of FY15. The purchase of Stormking Plastics – for an initial £27m, plus deferred consideration of up to £8m representing 6x EBITDA – adds a complementary manufacturer of building products. The deal enhances our fully diluted EPS estimates by c 12% in both FY16 and FY17. Consequently, Epwin’s P/E is now below 10x in FY17, with strong yield attractions.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

255.3

14.5

10.1

0.0

14.0

N/A

12/14

259.5

18.0

11.2

4.2

12.7

3.0

12/15e

258.2

19.3

11.5

6.4

12.3

4.5

12/16e

295.5

24.2

13.8

6.6

10.3

4.7

Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptionals.

Strong complement to existing Epwin business

Stormking is a leading manufacturer of moulded glass reinforced plastic (GRP) products primarily for the new build residential market. Its broad range comprises external functional and decorative lines including dormers, porticos and canopies, as well as other roofing, coping and ancillary items. These products strongly complement Epwin’s existing offering, extend its manufacturing process capability and bring opportunities to further develop a number of market channels. In the year to February 2016, trading financials are expected to have risen to revenue of £25m and EBITDA of c £4.5m (vs £22.8m and £3.0m respectively in the previous year).

Acquisition funded by cash and shares

The initial consideration is £27m; a further deferred payment (up to £8m) is dependent on Stormking’s performance in its year to February 2017. Both elements are to be settled with a 75:25 split of cash and new Epwin shares. Renewed and enlarged banking facilities (ie a £20m amortising term loan and a £30m RCF, to December 2019) are funding the cash element of the deal. New shares are to be subject to lock-in arrangements. Management commented that FY15 profitability is in line with market estimates so our earnings estimates for that year are unchanged, although our year-end balance sheet and cash flow statements now reflect the transaction. (We had previously expected Epwin to be modestly cash positive at the end of FY15.) We estimate that Stormking enhances our previous FY16 and FY17 fully diluted EPS estimates by c 12%.

Valuation: Improving earnings profile and good yield

Epwin has developed from a relatively flat earnings outlook at the time of its IPO (in mid-2014) to our expected three-year fully diluted EPS CAGR to FY17 of 4.5% before Stormking and 9.3% now. Consequently, the company’s P/E ratio declines steadily from 12.3x for FY15 to 9.8x in FY17, with a corresponding post-acquisition EV/EBITDA multiple of 6.1x. In addition, Epwin offers a dividend yield of c 4.5%, with prospective growth thereafter.

Exhibit 1: Financial summary

£m's

2012

2013

2014

2015e

2016e

2017e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Restated

 

 

 

 

Revenue

 

 

294.4

255.3

259.5

258.2

295.5

306.3

Cost of Sales

 

 

(209.9)

(185.8)

(186.7)

(183.6)

(210.1)

(217.7)

Gross Profit

 

 

84.5

69.5

72.8

74.6

85.4

88.5

EBITDA

 

 

21.8

21.3

24.5

25.6

32.1

33.3

Operating Profit (before GW and except.)

15.4

15.5

19.5

20.0

25.8

26.8

Intangible Amortisation

 

 

(1.7)

(1.7)

(1.7)

(0.0)

(0.8)

(0.8)

Exceptionals

 

 

(4.3)

(5.1)

2.3

(0.3)

0.0

0.0

Other

 

 

0.0

0.0

(0.8)

(0.4)

(0.4)

(0.4)

Operating Profit

 

 

9.4

8.7

19.3

19.3

24.5

25.5

Net Interest

 

 

(1.9)

(1.0)

(0.7)

(0.3)

(1.2)

(1.0)

Profit Before Tax (norm)

 

 

13.5

14.5

18.0

19.3

24.2

25.4

Profit Before Tax (FRS 3)

 

 

7.5

7.8

18.6

19.0

23.4

24.5

Tax

 

 

(2.2)

(1.2)

(3.5)

(3.7)

(4.6)

(4.8)

Profit After Tax (norm)

 

 

10.4

12.3

14.4

15.6

19.6

20.5

Profit After Tax (FRS 3)

 

 

4.5

5.0

15.1

15.4

18.8

19.7

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

122.3

128.0

135.3

141.4

141.7

EPS - normalised (p)

 

 

8.5

10.1

11.2

11.6

13.9

14.5

EPS - normalised (p) FD

 

 

 

 

11.2

11.5

13.8

14.4

EPS - FRS 3 (p)

 

 

3.7

4.1

11.8

11.3

13.3

13.9

Dividend per share (p)

 

 

0.0

0.0

4.2

6.4

6.6

6.7

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.7

27.2

28.1

28.9

28.9

28.9

EBITDA Margin (%)

 

 

7.4

8.4

9.4

9.9

10.8

10.9

Operating Margin (before GW and except.) (%)

5.2

6.1

7.5

7.7

8.7

8.7

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

56.9

54.7

53.8

86.6

89.0

90.1

Intangible Assets

 

 

27.9

26.4

24.7

52.8

51.9

53.1

Tangible Assets

 

 

26.1

25.1

26.2

30.9

34.1

34.1

Other

 

 

2.8

3.2

2.9

2.9

2.9

2.9

Current Assets

 

 

59.9

62.1

62.3

73.4

83.7

91.0

Stocks

 

 

20.9

21.7

22.4

23.3

25.7

26.6

Debtors

 

 

37.4

40.1

37.6

42.7

43.9

45.9

Cash

 

 

1.6

0.3

2.3

7.4

14.1

18.5

Current Liabilities

 

 

(53.2)

(54.5)

(49.0)

(52.7)

(55.4)

(57.7)

Creditors

 

 

(49.1)

(51.5)

(48.6)

(52.7)

(55.4)

(57.7)

Short term borrowings

 

 

(4.1)

(3.0)

(0.4)

0.0

0.0

0.0

Long Term Liabilities

 

 

(32.0)

(25.7)

(4.3)

(27.8)

(27.8)

(22.8)

Long term borrowings

 

 

(20.6)

(16.0)

(0.8)

(24.4)

(24.4)

(19.4)

Other long term liabilities

 

 

(11.4)

(9.7)

(3.5)

(3.4)

(3.4)

(3.4)

Net Assets

 

 

31.5

36.6

62.8

79.6

89.5

100.6

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

15.7

12.0

19.8

24.7

30.3

32.1

Net Interest

 

 

(1.4)

(0.9)

(0.7)

(0.3)

(1.2)

(1.0)

Tax

 

 

(1.6)

(0.9)

(1.7)

(3.2)

(4.1)

(4.3)

Capex

 

 

(4.6)

(4.9)

(5.6)

(8.8)

(9.5)

(6.5)

Acquisitions/disposals

 

 

(28.2)

(0.2)

0.0

(23.9)

0.0

(1.5)

Financing

 

 

0.0

0.0

10.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(1.9)

(6.7)

(8.8)

(9.4)

Net Cash Flow

 

 

(20.2)

5.1

19.9

(18.1)

6.7

9.4

Opening net debt/(cash)

 

 

0.5

23.2

18.7

(1.1)

17.0

10.3

HP finance leases initiated

 

 

(2.5)

(0.5)

(0.3)

(0.3)

0.0

0.0

Other

 

 

0.0

(0.1)

0.2

0.3

0.0

0.0

Closing net debt/(cash)

 

 

23.2

18.7

(1.1)

17.0

10.3

0.9

Source: Company accounts, Edison Investment Research

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Germany

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United Kingdom

New York +1 646 653 7026

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US

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Level 15, 171 Featherston St

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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