Each time a person chooses to take a shower rather than a bath, it’s fair to say that the last thing on their minds is how this benefits a small-cap company. Still, rest assured, Norcros is delighted. Britons’ preference for showers over baths was mentioned by Nick Kelsall, the company’s chief executive, yesterday as he reported a ninth consecutive year of growth.
Norcros, as you may have guessed, makes everything to do with showers — shower heads, shower cubicles, shower trays, bathroom furnishings, valves, other accessories and adhesives. Its most recognisable brands are Triton, the electric shower maker, and Johnson Tiles. It also makes kitchen taps and sinks under its Abode brand and operates in South Africa as well as Britain.
That diversification is a key driver of Norcros’s successful growth and is a factor that Mr Kelsall is keeping in mind as he tries to push total revenue up to £600 million by 2023, by making a target of delivering 50 per cent of revenues from South Africa. During the year to the end of March, the company made 44 per cent of its revenue outside of Britain.
Having once been the “problem child” for the company, the South African division helped Norcros enormously during 2016, when Brexit-related uncertainty hit consumer confidence in its home market. Underlying operating profits jumped 38 per cent to £8.8 million in South Africa this year.
Now Britain is making headway again. The group bought Merlyn, an Irish shower cubicle maker, for £59.1 million in November last year. That helped to push UK revenues up 10 per cent to £200.6 million in the year to the end of March. Expect more where that came from: the company says it has a “well developed” acquisition pipeline.
Norcros also has made a steady move away from the DIY end of the market to higher-growth areas, such as merchant traders and housebuilders. This is a sensible move at a time when those builders seem to be showing little signs of slowing down amid huge demand for new homes. Of the government’s target of building 300,000 homes a year, Norcros is aiming for its appliances to be in half of them. That positive outlook is expressed by the company’s decision to push up the total dividend for the year by 8.3 per cent.
There are some issues, though. Croydex, its designer and maker of bathroom furnishings, has been hit by the troubles at Homebase, which was a big account for the division, leading to a 10 per cent fall in revenues to £24.2 million.
At the same time, Norcros announced a further 50 job cuts in its Johnson Tiles division, incurring a £2.1 million charge, having already lost 90 jobs in November. Sales of ceramic tiles in the trade sector fell by 4.5 per cent, as less funding for refurbishment in social housing outweighed further growth from private housebuilders. Yet it was among the retailers that demand for Johnson Tiles really slumped. Revenue dropped 15.7 per cent in the year and by 36.23 per cent in the second half of the year, which was much greater than expected.
Despite these challenging market conditions, total revenue rose by 11 per cent to £300 million, while operating profits and pre-tax profits both rose by 15 per cent, to £27.4 million and £26.3 million, respectively. In Britain, operating profits rose 7 per cent to £18.6 million.
Amid all this, the company’s shares are priced at 214p, meaning that Norcros has an earnings-per-share ratio of about 6 per cent and a forward dividend yield of 4.2 per cent. The group is clearly undervalued but is unlikely to be so for long.
ADVICE Buy
WHY Strong demand from housebuilders suggests more growth to come and shares are undervalued
Autins Group
The old proverb about not having all your eggs in one basket has come home to roost at one of the West Midlands’ most innovative automotive component suppliers.
Last week shares in Autins, which provides insulation preventing noise and heat getting into a vehicle’s cockpit, crashed after a warning of lower demand from Jaguar Land Rover, which accounts for about two thirds of its business.
That, in itself, is the bear case for Autins, which yesterday reported decent half-year results but reiterated an outlook that even its own broker says means not much better than breaking even for the year.
Autins is market minnow, with a value of only £11 million now that its share price has collapsed by 70 per cent from its float two years ago. It has grown with the success of Jaguar Land Rover, Britain’s biggest automotive producer and employer.
Jaguar Land Rover, however, has hit three potholes: the uncertainty for British manufacturing around Brexit; its huge investment in clean diesel when everyone, including the government, is clobbering it to invest in electrification; and competition from the big German manufacturers.
The bull case for Autins is that the company is diversifying its offering of proprietary, accredited technology for new customers such as Volkswagen, BMW and Volvo. But the timing of an upturn in fortunes is not known and not helped by Autins’ management going into its bunker.
In any event, it has an odd-looking share register. Two big investors, Schroders and Miton Asset Management, speak for 39 per cent of the shares. Another 24 per cent is in the hands of three former directors, including its ex-chief executive who quit in not wholly explained circumstances 15 months ago. All told, more than 85 per cent of the company is held by only ten shareholders.
Autins is one of those home-grown automotive suppliers that this country should be proud of. That it is stuck in an increasingly cut-throat industry at a time of unprecedented technological change and political uncertainty makes for no sort of investment case.
ADVICE Avoid
WHY Innovative engineer stuck in an industry with too many known unknowns
