Norcros plc (LON:NXR), a prominent supplier of innovative bathroom and kitchen products, continues to make strategic moves to enhance its market presence and financial performance. The recent disposal of Johnson Tiles UK to its management team marks a pivotal shift in the company’s strategic focus towards higher-margin businesses. This decision is expected to significantly contribute to a projected margin of 14-15% for the UK businesses in the Norcros portfolio by FY25F. Such strategic divestitures underscore the company’s commitment to efficient capital allocation and operational excellence.
We asked Tom Fraine, Research Analyst at Shore Capital for his thoughts on the company’s financial performance, outlook, market position, potential and more.
Financial Performance and Outlook
Norcros has consistently demonstrated robust financial health, as evidenced by its financial results and forecasts. With a revenue of £441.0 million in FY23A and an anticipated stable performance in the coming years, Norcros is well-positioned to continue its growth trajectory. The adjusted EBITDA and adjusted PBT for FY23A stood impressively at £50.5 million and £41.8 million, respectively, showcasing the company’s ability to maintain profitability despite market fluctuations.
The strategic acquisition of Grant Westfield in CY22 further exemplifies Norcros’s commitment to enhancing its margin profile and overall quality of the group. This acquisition, along with the potential for further mergers and acquisitions, is expected to drive a rerating of the shares, which currently seem undervalued.
Market Position and Competitive Edge
Norcros’s strategic focus on portfolio development, organic growth, and operational excellence has significantly strengthened its market position. The company’s emphasis on customer service, robust supplier relationships, and innovative product development continues to drive market share gains. These efforts are complemented by Norcros’s strong performance in its South African operations, which, despite recent challenges, remain a key component of the group’s success.
Investment Potential
The current market valuation of Norcros does not fully reflect its strong operational performance and future growth prospects. With a dividend yield of 5.5%, which is expected to be nearly three times covered by free cash flow, Norcros presents an attractive opportunity for investors seeking stable returns. Our DCF analysis suggests potential upside of more than 100% for the shares, with a fair value estimate of 400p.
Upcoming Events and Strategic Initiatives
Looking forward, Norcros is scheduled to announce its full-year results for the year ended 31 March 2024 on 13 June 2024. Ahead of this, a Capital Markets Event on 1 May 2024 will provide further insights into the company’s strategies and market outlook. These events are crucial for investors and stakeholders to understand the impact of recent disposals and acquisitions on the company’s financial health and strategic direction.
Norcros plc is strategically repositioning itself to enhance shareholder value through improved operational efficiency and strategic acquisitions. The company’s focus on high-margin businesses, coupled with its robust financial performance and strong market positioning, makes it a compelling choice for investors looking for growth and stability in the industrials sector.
