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Epwin Group COVID-19 update

Epwin Group PLC (LON:EPWN) has announced that it will implement a controlled shut down of its operating facilities for a temporary period in response to the anticipated reduction in demand. FY19 results, that had been scheduled to be released on the 2nd April, will now also be delayed as per guidance from the FCA that has been supported by the QCA. This is in line with many other companies. Epwin benefits from a strong balance sheet that has significant headroom and will come through this difficult period in a strong position relative to competitors that have much weaker balance sheets.  Frustratingly trading in the new year had started well and was ahead of budget.

FY19 results as expected: Whilst the actual results have been delayed in line with FCA guidance, today’s statement does indicate headline numbers are in line with the pre close trading update in late January and marginally ahead of ZC forecasts. Net debt reduced significantly from £24.8m to £16.4m as the business continued to generate strong levels of FCF despite a difficult RMI market. In addition, the business has made significant progress in the year with many of its strategic priorities, particularly in broadening the product offering.

£m2018A2019E^2019E% change
Revenue281.1282.1281.30.3
Adj. Operating Profit18.719.118.81.3
margin (%)6.76.86.7 
Net (Debt)/Cash(24.8)(16.4)(16.4)0.0

^FY19 forecasts updated for headline numbers provided in statement

Source: Company data, Zeus Capital estimates

Strong balance sheet with significant headroom: Net debt at the year end of £16.4m equated to just 0.6x EBITDA. Management had renewed banking facilities in the middle of last year. As a result, it has significant facilities of £75.0m in place, £65.0m RCF and £10.0m overdraft, until June 2022. With a focus on preserving cash the remainder of the RCF has been drawn down and cost cutting initiatives in the form reduced capital expenditure have been implemented. Management will also make use of additional commitments from government to support businesses, such as the Coronavirus Job Retention Scheme, should it be appropriate. Epwin Group will not pay the final dividend (ZC estimate 3.3p) for FY19, this is in line with most businesses that have updated the market on COVID-19 as they attempt to preserve cash.

Forecasts: The pre close trading update, 23rd January, in unison with today’s statement provide an overview of the year end results for FY19. Revenue, EBIT and net debt are all in line with expectations. Frustratingly, the new year had started well and was ahead of budget until the current pandemic has forced the temporary closure of sites. As with all peers in the sector, there will be an impact to forecasts from the closure, but it is too early to quantify. ZC estimates for FY20 and FY21 are left unchanged at this juncture but will be updated as soon as we have greater clarity on the potential impact.  .

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