Epwin Group — Update 18 August 2016

Epwin Group (AIM: EPWN)

Last close As at 28/03/2024

GBP0.77

1.50 (1.99%)

Market capitalisation

GBP108m

More on this equity

Research: Industrials

Epwin Group — Update 18 August 2016

Epwin Group

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Written by

Industrials

Epwin Group

Clear drivers for progress

H116 update

Construction & materials

18 August 2016

Price

108p

Market cap

£153m

£/€1.16

Net debt (£m) at December 2015

14.4

Shares in issue

141.5

Free float

67%

Code

EPWN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.9

(11.5)

(23.9)

Rel (local)

(0.6)

(19.6)

(26.9)

52-week high/low

149.00p

97.00p

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

H116 results

14 September 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

Coming either side of the Brexit result, H116 pre-close comments were less clear about FY16 prospects than those made at the AGM. Focus on operational improvements and the integration of 2015 acquisitions is continuing and progress will be the key determinant of the full-year outcome. Our estimates are unchanged and we continue to expect a good step forward in FY16 earnings.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

259.5

18.0

11.2

4.2

9.6

3.9

12/15

256.0

19.2

11.7

6.4

9.3

5.9

12/16e

291.7

24.2

13.8

6.6

7.9

6.1

12/17e

302.5

25.4

14.4

6.7

7.6

6.2

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

Natural caution, limited visibility

In the first quarter of 2016, we felt that other UK RMI sector building products suppliers tended towards more positive guidance than Epwin’s view of generally flat markets. At the subsequent AGM (24 May), management maintained existing FY16 guidance without commenting further on market conditions at that time and has most recently confirmed that H116 trading met expectations. Since the Brexit announcement, commentators have cited increased uncertainty and Epwin has echoed this. It operates with relatively short order visibility with products feeding into different stages of build cycles and exposure to trends across the range of market segments served. At some point, weaker sterling may result in some price pressure from polymer materials ultimately linked to US dollar feedstock costs.

2016 earnings progress largely from acquisitions

Investment and process improvement has been given greater prominence since IPO. This has supported the roll-out of a new/replacement window profile system (Optima), which will run into early 2017. The business platform has also been strengthened to facilitate acquisitive activity. Ecodeck (wood plastic composite decking and balcony products) and Stormking (glass reinforced plastic functional and decorative exterior building products) brought new manufacturing processes to the group in H215. They are now integrated into group functions with distribution channels to be aligned progressively. We expect FY16 incremental revenue and EBIT contributions from these businesses of c £29m and c £5m respectively (before associated funding costs) and modest underlying progress elsewhere.

Valuation: P/E below 10x, yield c 6%

Having broadly tracked the FT All-Share Index from the beginning of the year, Epwin’s share price moved lower following the Brexit outcome, to a 100p-110p trading range (and is c 17% down year to date). Others with UK RMI sector exposure (eg TPK, ECEL, SHI) have a similar chart pattern. Epwin’s FY16e P/E and EV/EBITDA are now 7.9x and 4.8x respectively, with a prospective dividend yield of 6.1% on our estimates. We believe the work being undertaken to improve business performance will provide some resilience in current market conditions.

Exhibit 1: Financial summary

£m

2012

2013

2014

2015

2016e

2017e

2018e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Restated

 

 

 

 

 

Revenue

 

 

294.4

255.3

259.5

256.0

291.7

302.5

311.0

Cost of Sales

 

 

(209.9)

(185.8)

(186.7)

(178.6)

(203.5)

(211.0)

(216.9)

Gross Profit

 

 

84.5

69.5

72.8

77.4

88.2

91.5

94.0

EBITDA

 

 

21.8

21.3

24.5

25.6

33.3

34.5

35.6

Operating Profit (before GW and except.)

15.4

15.5

19.5

20.1

25.8

26.8

27.6

Intangible Amortisation

 

 

(1.7)

(1.7)

(1.7)

(0.0)

(1.0)

(1.0)

(1.0)

Exceptionals

 

 

(4.3)

(5.1)

2.3

(0.6)

0.0

0.0

0.0

Other

 

 

0.0

0.0

(0.8)

(0.4)

(0.4)

(0.4)

(0.4)

Operating Profit

 

 

9.4

8.7

19.3

19.1

24.4

25.4

26.2

Net Interest

 

 

(1.9)

(1.0)

(0.7)

(0.5)

(1.2)

(1.0)

(0.5)

Profit Before Tax (norm)

 

 

13.5

14.5

18.0

19.2

24.2

25.4

26.7

Profit Before Tax (FRS 3)

 

 

7.5

7.8

18.6

18.6

23.2

24.4

25.7

Tax

 

 

(2.2)

(1.2)

(3.5)

(3.3)

(4.6)

(4.8)

(5.1)

Profit After Tax (norm)

 

 

10.4

12.3

14.4

15.9

19.6

20.5

21.6

Profit After Tax (FRS 3)

 

 

4.5

5.0

15.1

15.3

18.6

19.5

20.6

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

122.3

122.3

128.0

135.2

141.4

141.7

142.1

EPS - normalised (p)

 

 

8.5

10.1

11.2

11.8

13.9

14.5

15.2

EPS - normalised (p) FD

 

 

N/A 

N/A

11.2

11.7

13.8

14.4

15.1

EPS - FRS 3 (p)

 

 

3.7

4.1

11.8

11.3

13.2

13.8

14.5

Dividend per share (p)

 

 

0.0

0.0

4.2

6.4

6.6

6.7

6.9

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

28.7

27.2

28.1

30.2

30.2

30.2

30.2

EBITDA Margin (%)

 

 

7.4

8.4

9.4

10.0

11.4

11.4

11.4

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

5.2

6.1

7.5

7.9

8.8

8.8

8.9

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

56.9

54.7

53.8

91.7

92.7

92.5

91.0

Intangible Assets

 

 

27.9

26.4

24.7

57.9

56.9

57.9

57.9

Tangible Assets

 

 

26.1

25.1

26.2

33.1

35.1

33.9

32.4

Other

 

 

2.8

3.2

2.9

0.7

0.7

0.7

0.7

Current Assets

 

 

59.9

62.1

62.3

87.2

81.7

89.7

100.0

Stocks

 

 

20.9

21.7

22.4

23.6

25.9

26.8

27.6

Debtors

 

 

37.4

40.1

37.6

41.5

44.2

45.7

46.8

Cash

 

 

1.6

0.3

2.3

22.1

11.6

17.1

25.6

Current Liabilities

 

 

(53.2)

(54.5)

(49.0)

(68.8)

(54.5)

(57.7)

(60.5)

Creditors

 

 

(49.1)

(51.5)

(48.6)

(53.2)

(54.5)

(57.7)

(60.5)

Short term borrowings

 

 

(4.1)

(3.0)

(0.4)

(15.6)

0.0

0.0

0.0

Long Term Liabilities

 

 

(32.0)

(25.7)

(4.3)

(30.0)

(30.0)

(23.5)

(18.5)

Long term borrowings

 

 

(20.6)

(16.0)

(0.8)

(20.9)

(20.9)

(15.9)

(10.9)

Other long term liabilities

 

 

(11.4)

(9.7)

(3.5)

(9.1)

(9.1)

(7.6)

(7.6)

Net Assets

 

 

31.5

36.6

62.8

80.1

89.9

100.8

111.9

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

15.7

12.0

19.8

23.8

28.7

33.2

34.6

Net Interest

 

 

(1.4)

(0.9)

(0.7)

(0.5)

(1.2)

(1.0)

(0.5)

Tax

 

 

(1.6)

(0.9)

(1.7)

(2.3)

(4.1)

(4.3)

(4.6)

Capex

 

 

(4.6)

(4.9)

(5.6)

(9.0)

(9.5)

(6.5)

(6.5)

Acquisitions/disposals

 

 

(28.2)

(0.2)

0.0

(20.9)

0.0

(1.5)

0.0

Financing

 

 

0.0

0.0

10.0

0.0

0.0

0.0

0.0

Dividends

 

 

0.0

0.0

(1.9)

(6.7)

(8.8)

(9.4)

(9.6)

Net Cash Flow

 

 

(20.2)

5.1

19.9

(15.6)

5.1

10.5

13.5

Opening net debt/(cash)

 

 

0.5

23.2

18.7

(1.1)

14.4

9.3

(1.2)

HP finance leases initiated

 

 

(2.5)

(0.5)

(0.3)

0.4

0.0

0.0

0.0

Other

 

 

0.0

(0.1)

0.2

(0.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

23.2

18.7

(1.1)

14.4

9.3

(1.2)

(14.7)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

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

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Epwin Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

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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