Market sentiment is rapidly re-focusing on earnings potential in an improving economic cycle. Norcros’ CMD was well-timed with this increasing willingness to consider mid-cycle earnings scenarios. Norcros is targeting accelerators to boost organic growth in core bathroom and kitchen product groups to be supplemented by M&A activity.
The CMD reiterated the company’s four strategic pillars and added financial targets including organic, above market revenue growth and margin expansion. Leading market positions and scale at both company and group levels are the platform and new product development, sales channel cross-referrals and operational excellence are the key enablers.
Norcros has announced the proposed disposal of Johnson Tiles UK for an expected £1m (plus potential deferred consideration) with a related exceptional impairment charge of £15m. We have adjusted revenue estimates accordingly with profitability unchanged, however the disposal increases both the pro forma group EBIT margin by c.100bp and group ROCE by c.50bp.
We can see a pathway to a higher valuation, but for now raise our fair value for the company to 257p per share.
