Small Cap Report (14 Feb) - NXR, VP., RNO, TSTL

Thursday, Feb 14 2013 by

Norcros (LON:NXR) issues a planned IMS (Interim Management Statement) covering the 18 week period to 3 Feb 2013 (which is the bulk of H2, since their year-end is 31 Mar 2013). They are the maker of Triton showers, and Johnson Tiles & adhesives, with operations in the UK and S.Africa. I am an enthusiastic holder of Norcros, and believe the company has excellent value & recovery characteristics, especially when you work out how strong normal cashflow is, once one-off factors are stripped out, and the large depreciation charge added back.

There seem to be a lot of positives in today's IMS. Group revenue is up a surprisingly large 15.1% in the 18 weeks in constant currency terms, but that dropped to a still impressive 10.8% in reported sterling terms (the difference being due to a weaker S.African Rand). Not bad going when they describe conditions as "subdued", so clearly NXR is gaining market share strongly - a very good sign in my opinion, as that effect is likely to be multiplied once the economy recovers.

The outlook statement says that they, "should continue to make progress in line with market expectations for the current year". Market expectations are for 1.9p EPS, but that forecast hasn't changed throughout the last year, as can be seen by this snippet from the Stockopedia StockReport on Norcros:


I particularly like the 5 graphs above which enable you to instantly understand key long-term trends in Revenue, Profit, EPS, and valuation.

As the 1.9p EPS forecast hasn't changed for a year, and given today's strong IMS, I would have thought that NXR is likely to out-perform this target. Their interim results showed underlying EPS up from 0.9p to 1.1p, and given that they achieved 1.9p underlying EPS for the last full year, it doesn't make sense to forecast unchanged EPS for this year, given that they were 0.2p ahead at the interims, and trading strongly in H2.

So I suspect that the full year results to 31 Mar 2013 are likely to be ahead of the 1.9p forecast, although perhaps they want to keep something in the back pocket until preliminary results are announced in mid to late Jun 2013?

The pension deficit at Norcros should also now be reducing, given that Gilt yields have risen in recent months, and in…

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Norcros Plc (Norcros) is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. It is focused on showers, taps, bathroom accessories, tiles and adhesives. The Company operates through two segments: the United Kingdom and South Africa. The Company is managed divisionally, with the seven operating divisions across the United Kingdom and South African segments. Its United Kingdom segment include divisions, such as Triton Showers, Vado, Johnson Tiles and Norcros Adhesives, and South Africa segment include division, such as Johnson Tiles South Africa, TAL and Tile Africa. In the United Kingdom, it offers a range of bathroom and kitchen products both for domestic and commercial applications. It offers showering, bathroom controls, tiles and fixing solutions. The Company serves consumers, architects, designers, retailers and wholesalers across the globe. more »

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Vp plc is a United Kingdom-based company engaged in equipment rental and offering associated services. The Company operates through six segments: Hire Station, Torrent Trackside, UK Forks, Groundforce, Airpac Bukom and TPA. The Hire Station segment is a provider of small tools, climate, lifting, safety, survey and press fitting equipment. The Torrent Trackside segment is a supplier of rail infrastructure portable plant and related trackside services. The UK Forks segment is a hirer of telescopic handlers and associated equipment. The Groundforce segment is a rental provider of excavation support, piling, pipe stoppers, air pressure testing, pumps, trenchless technology and temporary bridges. The Airpac Bukom segment provides specialist compressed air and steam generation services. The TPA segment supplies temporary access solutions, including equipment rental and installation of portable roadways and walkways, among others. more »

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Renold plc is a United Kingdom-based company engaged in delivering engineered and power transmission products and solutions to its customers across the world. The Company operates through two segments: Chain and Torque Transmission. The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of torque transmission product through Chain National Sales Companies (NSCs). The Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings. The Company's products include transmission chain, conveyor chain, leaf chain, smartlink, gears, couplings, and freewheels, among others. The applications of conveyor chain include theme park rides, water treatment plants, cement mills, agricultural machinery, mining and sugar production. more »

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  Is Norcros fundamentally strong or weak? Find out More »

7 Comments on this Article show/hide all

ericb 14th Feb '13 1 of 7

Thanks Paul

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Funnymoney 14th Feb '13 2 of 7

Tristel appears to be on a tightrope between its declining endoscopy business and a new business area. With the former declining more rapidly than expected and the latter not up and running properly (e.g. problems in China) I would say it is very early days to be getting optomistic.

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Ramridge 14th Feb '13 3 of 7

Re. Nervousness about the share market over 2013/ 4. Mervyn King may be sleeping a little better now, but he is about to pass on the baton to Mark Carney. Mr Carney from all accounts is not so averse to letting inflation rise to over the current target of 2%. Basically he is likely to put the breaks on QE and let inflation rise. So the prospect to me is rising inflation. If you accept this premise then what should us humble private investors do? The strategy then ought to be to look for "equities that sell essential products and have a degree of pricing power". That means largely the following sectors, Oil & Gas Producers, Utilities, Telecomms, Tobacco and maybe Food. Over the next weeks I am going to be re-balancing my portfolio in this way, especially looking for 'bargain' small caps in these sectors.
As always readers DYOR.
Regards, Ram

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Funnymoney 14th Feb '13 4 of 7

Or even "optimistic"!

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Paul Scott 14th Feb '13 5 of 7

In reply to Ramridge, post #3

Hi Ram,
Mervyn King was explaining that inflation is slightly higher than the 2% target because of factors which are unrelated to underlying demand in the economy - so it's cost-push inflation from higher-priced commodities, higher import prices (from sterling devaluation), and Govt decisions like green taxes on energy, and higher student loans.
So his argument is that it would be madness to take action which will suppress the economy, in reaction to inflation caused by factors other than excess demand, and I totally agree. It's far more important to get the economy moving, and inflation will just be whatever it will be, and provided it doesn't accelerate over (say) 5% then we should be fine.

The 1970s inflation was caused by a spiral of rising wages & prices, feeding on each other. We're not in that situation now at all, due to a largely non-unionised private sector workforce, and globalisation. So when inflation rises, peoples living standards go down, because wage rises lag behind. Therefore inflation will actually trigger mechanisms to reduce inflation, by sucking demand out of the economy.

A lot of the old rules have gone out of the window at the moment, for the time being anyway.

Regards, Paul.

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Ramridge 14th Feb '13 6 of 7

In reply to paulypilot, post #5

Paul - I sincerely hope your reading of the tea leaves is right. I am afraid my sense tells me otherwise. That's why I have so to speak bought a tin hat from the local Army Surplus store and will re-jig my portfolio as explained in my earlier post.
Anyway, your daily reports are straight and without b.s. - you have had my thumps up a number of times. Splendid.
Regards, Ram

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Paul Scott 14th Feb '13 7 of 7

In reply to Ramridge, post #6

Hi Ram,
Nobody ever went bust banking a profit, so I would never criticise anyone for taking some money off the table after a good run in the markets.
Cheers, Paul.

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About Paul Scott

Paul Scott

Paul trained as an accountant, then spent 8 years as FD for a ladieswear retail chain.He became a professional small caps investor in 2002 to date.Paul writes a small caps report for on weekday mornings. He joined Fundamental Asset Management Ltd as a research associate in 2014, as part of their Small Cap Value Portfolio team. more »


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