Epwin Group “demand stronger than expected” says Zeus

Epwin Group

Epwin Group plc (LON:EPWN) AGM statement indicates that trading in the first four months of the year has remained strong and followed the trends seen at the end of the last financial year. Revenue is 15% ahead yoy, against a very strong comparative period in FY21. Material costs continue to increase, particularly resin, and are directly related to the on-going conflict in Ukraine. Reassuringly Epwin has managed to secure supply, a benefit of being the largest player in the UK market. Any further cost input pressures will be offset with price increases and surcharges, mirroring the dynamics of FY21. The Company has reiterated that it remains on course to hit expectations. Zeus leaves forecasts unchanged at this time but recognise that trading in the early part of the year has been strong, offset by cost inflation. The recent market weakness leaves Epwin trading on 8.4x FY22 earnings, net debt/EBITDA 0.1x and a yield of 6.0%.

No change to estimates but demand stronger than expected
¨ Market dynamics remain exceptionally tight: Revenue is up 15% yoy for the four months to the end of April. The comparative period in FY21 achieved yoy growth of 56% (against the first lockdown) but importantly was up 9% against the non-covid hit period in FY19. This puts the strength of recent trading in context. Offsetting the strength in revenue has been continued raw material cost input pressures, particularly resin. As the largest player in the extrusion market, Epwin has been able to secure supply and capitalise on its strong balance sheet. The industry did a good job of passing cost inflation through to customers in FY21 and Epwin was ahead of the curve in this regard. It should be expected that further price increases and surcharges will be used to offset any further inflationary pressures.

¨ Zeus forecasts unchanged for the time being: Zeus FY22 revenue forecast is 3.9% higher yoy at £342.8m with gross margin flat, after it fell 200bps in FY21 (28% versus 30% in FY20). A continuation of current trading would lead to a positive reassessment of the revenue growth assumption but offsetting this would be the impact of inflationary pressures on COGS and the reduction in gross margin. Epwin, should be able to outperform peers and take market share in an inflationary environment due to its strong balance sheet and size in the market. Its strong balance sheet combined with the £55.0m of headroom on its banking facilities could allow Epwin to undertake significant acquisitions to drive the bottom line.

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¨ Valuation: Based on updated Zeus forecasts, Epwin Group trades on 8.4x FY22 earnings. Dividend yield is 6.0% in FY22, which is well supported by low levels of gearing (covenant net debt of 0.1x adjusted EBITDA), offering significant value

Summary financials

Price80.0p
Market Cap£115.9m
Shares in issue144.9m
12m Trading Range80.0p– 119.0p
Free float71%
Next EventH1 trading update

Financial forecasts

Yr end Dec (£’m)2021A2022E2023E2024E
Revenue329.6342.8349.6356.6
yoy growth (%)36.8422
Adj. EBITDA^3640.140.942.3
Adj. EBIT^18.521.522.122.9
Adj. PBT^13.717.217.818.6
Adj. PAT^11.113.913.614
EPS (p) ful dil. Adj.^7.69.59.39.5
DPS (p)4.14.84.64.8
Net (debt)/cash^^-9.4-3.13.56.1
P/E (x)10.68.48.68.4
EV/EBITDA (x)3.532.82.6
Div yield (%)5.165.85.9

^ Adjusted for amortisation of acquired other intangible assets, share-based payments expense and other non-underlying items

^^Pre-IFRS 16 basis

Source: Audited Accounts and Zeus estimates

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