Overlooked and undervalued

Norcros has leading positions in its market segments built upon strong brands, new product development, channel diversity and supply chain strengths. It is seeking to drive further market share gains organically by intensifying group synergy benefits and through M&A activity.

H1 results saw an 8.3% reported group revenue decline (or -4.1% on a constant currency, LFL basis) was substantially driven by lower demand in South Africa while the UK was broadly flat y-o-y. EBIT came in 2.7% lower (unchanged in constant currency) reflecting a better UK outturn – being the net effect of exiting Norcros Adhesives and two additional month’s contribution from Grant Westfield (GW) – more than offsetting adverse operational gearing in South Africa.

Norcros is profitable, strongly cash generative and moderately geared at 1x EV/EVITDA. We initiate coverage with our DCF analysis suggesting a fair value midpoint of 233p / share, giving c. 50% upside potential on a rerating.