Good morning!
Norcros (LON:NXR)
The bathroom fittings company issues an IMS this morning covering the 18 week period to 2 Feb 2014.
Most of it sounds negative, but the only sentence that really matters concerns how profits are going to be against market expectations, and on that score the company ticks the right box, saying;
Nevertheless, with our strong brands, leading market positions and continued self-help initiatives focused on market share gain in both our home and export markets, the Board remains confident that the Group should continue to make progress in line with market expectations for the current year.
Broker forecast consensus is for 2p EPS for the current year (ending 31 Mar 2014), so at about 23.5p the shares are currently on a PER of 11.5, which is one of the cheapest ratings you'll find for a reasonable-sized, cyclical business. There is a large pension fund, with a significant deficit, but that doesn't seem to be holding back share price rises elsewhere, e.g. AGA Rangemaster (LON:AGA) has a horrendous pension deficit problem, which the market has completely ignored, taking their shares up to a forward PER of 14.2, despite the fact that on the current deficit reduction plan, all their profits until about 2020 are likely to be swallowed up by the pension fund.
Norcros is in a much better position that Aga, having to pay only around £2m p.a. to top up the pension fund, which is about 10% of the cashflow the company generates. Norcros also has freehold property which covers most of the pension deficit, so the way I look at things the two largely offset - since one is a long term asset, and one is a long-term liability.
Luckily, I spotted the opportunity here and was buying when they were about 10-12p, so it's been a strong performer in my portfolio, out-performing the FTSE SMALL CAP INDEX XIT (FTSE:SMXX) as you can see from the two year chart below;
As expected, NXR was affected by the sharp weakening in the South African currency in recent months, as about 40% of their group turnover is achieved by their subsidiaries there,…
