Norcros Plc (LON:NXR) had a strong half-year report, with operating profit down less than 3% despite revenue pressures. Operating margins rose and the UK segment had record profits. Norcros gained market share in the UK and South Africa. With strengths often overlooked and pension issues resolved, Edison Research say it’s a good investment opportunity with shares valued at 246p, indicating a 50% upside potential.
H1 Analysis: Pressures and Strategic Progress
Despite an 8.3% year-over-year decline in H1 revenue, dropping to £201.6 million, Norcros showed resilience with a mere 2.7% reduction in underlying operating profit. This was primarily a consequence of revenue decline, but the company’s strategic actions led to a 60 basis point increase in underlying operating margin to 10.6%. These actions included the closure of the adhesives operation and a 50% capacity reduction at Johnson Tiles. The company’s strong cash generation contributed significantly to the reduction of net debt from £58.9 million to £46.6 million.
Investment Case: Consistent Growth Strategy
Norcros’s growth strategy has been consistent over the years, focusing on developing strong brands in fragmented markets. Its capital-light structure and focus on the resilient mid to premium segment of the RMI market reduce volatility. The company’s 25% ‘vitality rate’—sales from products launched in the last three years—demonstrates its success in new product development, exemplified by the Triton Envi shower.
Profit Forecasts and Valuation
Despite a 7–8% reduction in revenue forecasts for FY24 and FY25, profit estimates remain unchanged. The P/E based valuation implies a share value of 236p, while the Dividend Discount Model (DDM) suggests 255p per share. The average valuation stands at 246p, indicating about a 50% upside. Currently trading at the lower end of its long-term consensus forward P/E range, Norcros could present an attractive investment opportunity.
UK Market: Record Profits Despite Challenges
In the UK, Norcros achieved a 14.7% increase in H1 operating profit, reaching a record £18.7 million. This resulted in a margin increase of 160 basis points to 13.0%. The UK market, which accounts for 71% of Norcros’s revenue, saw a slight 0.8% revenue growth to £143.9 million. The company’s strategic focus and brand portfolio management contributed significantly to this success.
South Africa: Challenges and Market Share Gains
In South Africa, revenue declined by 25% in absolute terms due to energy rationing impacts on consumer confidence. However, Norcros managed to maintain its market share through product development and customer service focus. The leading adhesives business, TAL, and House of Plumbing showed resilience in a challenging market.
Valuation and Future Prospects
The valuation suggests about a 50% upside for Norcros shares. The forward P/E multiple valuation indicates a 236p per share value, while the DDM suggests a valuation of 255p. Norcros’s dividend policy and potential for future acquisitions further strengthen the investment case. The company is well-positioned to benefit from market stabilisation in the UK and South Africa, potentially attracting a higher multiple.
Norcros Plc is a leading supplier of showers, enclosures, trays, tiles, taps and related fittings and accessories for bathrooms, kitchens, washrooms and other commercial environments. It has operations in the UK and South Africa, with some export activity from both countries
