Small Cap Value Report (8 Oct 2015) - NXR, ABDP, FLYB, DTG

8th Oct '15 by Paul Scott

20 comments 24582 reads

Good morning!

Norcros (LON:NXR)

Share price: 209.6p (up 0.8% today)
No. shares: 61.0m
Market cap: £127.9m

(at the time of writing, I hold a long position in this share)

H1 trading update - this group describes itself as, "the market leading supplier of innovative branded showers, taps, bathroom accessories, tiles and adhesives" - how refreshing to read a simple, plain English description of what the company does (a rarity today!).

The key part confirms that H1 is in line;

Group underlying operating profit¹ in the first half is expected to be in line with the Board's expectations.

Other points;

H1 sales £118.7m (up 9.3% vs LY, up 12.0% on constant currency basis)
Encouragingly, 6.5% of that 12.0% is LFL organic growth
Balance of 5.5% non-organic growth came from Croydex acquisition
UK LFL growth +1.8%, S.Africa +16.9%
UK retail sector "remains challenging"
UK trade sector "good year on year growth" - new house building helped
Croydex performing in line with expectations
Net debt £29.5m (2014: £20.0m)
Cash outflow of £20.1m for Croydex acquisition in the period

Outlook comments -

All of our businesses continue to perform well notwithstanding the mixed market conditions and the recent weakening of the Rand. The improved manufacturing efficiencies in Johnson Tiles UK have been sustained and we have made good progress in integrating the Croydex business into the Group. The Board remains confident that the Group will continue to make progress in line with market expectations for the year to 31 March 2016.

That all sounds pretty good to me.

Valuation - since the company is trading in line, these valuation figures should be accurate;

It's difficult to find companies performing well, on a single digit PER, but here we have one. Forward PER of only 8.99 looks a bargain to me. Trouble is, it's looked a bargain for quite some time! There again, the price seems to be holding on to the higher levels established in the summer of this year.

Bear in mind there is a large pension scheme here, which is a negative, so valuation needs to factor that in.

Stockopedia likes it, with a StockRank of 93.

My opinion - I like it - this is a long-term holding of mine, and it's strikingly cheap compared with practically everything similar out there.

I particularly like that S.Africa is powering ahead, shrugging off currency issues. The company is making very sensible acquisitions, with the intention of growing the business substantially.…

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CliveBorg

8th Oct '15

Paul, do you mean fair value is 300p, not 30p? Perhaps I've misunderstood.

dosh

I agree with you comments about Norcros Paul and have had a substantial holding for some time now. All of my portfolio can loosely be described as boring and that’s fine by me. Experience has taught me that all the jam tomorrow stuff turns to toast!
I don’t think there will be any great excitement that will lead to a 10% or so increase in the next couple of weeks but I reckon there should be a steady trickle upwards over the coming months; boring is good!

dmjram

Think Paul's fair value of 30p is the "old money" price pre the 10 for 1 consolidation so will be 300p now.

Thanks dmjram.

Paul Scott

CliveBorg,

Many thanks for pointing out my error, have corrected.

Told you I hadn't got used to the new money on Norcros (LON:NXR) !!

Regards, Paul.

Gostevie

this group describes itself as, "the market leading supplier of innovative branded showers, taps, bathroom accessories, tiles and adhesives" - how refreshing to read a simple, plain English description of what the company does (a rarity today!)

Refreshing? Frightfully old fashioned, more like. "A leading provider of lavacrum solutions" would have been far more appropriate for 2015. Must do better.

:-)

drvodkaquickstep

Good luck with this one guys but personally I still really think the BoD of Norcros are overpaid for a company of their size. I held for a while but sold out primarily on this basis.

Chipspa

Paul - what do you think about the Dart DTG trading statement that came out this morning. I'm a long term holder and it has moved up a lot recently. However I am surprised that the market hasn't taken it higher today as the closing outlook statement finishes " it is now apparent that Group performance for the full year ending 31 March 2016 will materially exceed current market expectations." You cant ask for more than that..

garbetklb

ABDP - I've just written to the Chairman & FD about yesterday's announcement. And emailed you, Paul.

We hold.

Hi Chipspa,

I hadn't got round to looking at Dart (LON:DTG) yet. Airlines are a bit under a cloud at the moment, as the market seems to be pricing in higher oil prices. Let's hope airlines have hedged their fuel cost for many years to come at cheap rates, during this period of cheap oil.

That's probably the reason why a muted response to DTG positive trading update - the market looks forward, and might see this as a boom period with profits that could fall back somewhat as fuel becomes more expensive in future.

Regards, Paul.

lightningtiger

Interesting to look at the sector with building materials required for house building, which Norcros comes into. Whilst there must be some taps and showers in a house, as well as tiles, there is certainly a lot more bricks. MBH seems to be doing well since they are into bricks. Certainly a good sector to consider. there is also Marshalls (MSLH) , a good "ruler" stock into stone slabs and landscaping.

cig

Airlines should not hedge "for many years to come"! It's a recipe for bankruptcy: unless all your competitors have the same hedge, any error will be enough to destroy you because they will be able to sell their tickets so much cheaper than you. With a duration of "many years" a modest error would obliterate a multiple of typical airline margins. All they need to hedge really is tickets they've already sold -- for unsold seats they can pass through oil price changes to customers as most tickets are dynamically priced anyway (or max up to their main competitors' hedges' duration).

Besides, who knows if oil is currently "cheap"?

(Disclosure: short oil.)

ericb

ADBP - which broker - what did the tip say .... "Weve heard on the grapevine that results are going to be ahead and the grant has been refused cos they are making enough money anyway" .. ??

All the more reason for them to come clean and upfront and say exactly what they tipped and how !!

Brackendale

Paul & indeed All,

Can anyone advise on good sources of corporate news (particularly for small caps)? For example, French Connection is rocketing (er, from a much reduced base) and I cannot seem to find any news which suggests why that might be.

Hi cig,

Normally I would agree with you about airlines being wise NOT to hedge their fuel too far forwards.
However, as we are currently in a situation where the oil price has dipped below the cost of production of some oil, then people in the sector tell me it's only a matter of time before supply contracts, demand rises, and the oil price goes back up again.

Therefore to my mind, this is exactly the sort of time when a bold move on hedging would make sense. But I also take on board your point, that a safety first approach would be to keep in line with the hedging arrangements of the competition, thus avoiding backruptcy as your first priority.

Regards, Paul.

I agree with your friends, but I probably disagree with the timing: I see something like 3-5 years before demand catches up with supply. So somewhere below say $30 within a couple of years. Then a phase where everybody gets convinced that $30 (or wherever the bottom is) oil is here to stay. And then up. (Basically I think we're in the "bull trap" phase in the classic bubble cycle chart.)

In any case, a bold move in oil hedging by an airline will either bankrupt it, or will be so successful as to turn the bloody planes into a distraction. So if an airline management is tempted, they should quit and move to an actual hedge fund, rather than turn their airline into a clunky one.

Hydrus

Paul ADBP also have at least £7m net cash which is not far off 20% of the mcap meaning the rating is even lower

Ramridge

12th Nov '15

Hi Paul -
RE. Norcros (LON:NXR) I have looked at the numbers and quite like this stock. The only thing that sticks out to me is the large pension deficit which might be the reason for the low valuation. The deficit stands at £42m which is 81% of Net Assets. The recovery plan agreed with the trustees of £2m pa + CPI is much lower than the norm (around 10% p.a. = £4m). However on the positive side, interest rates are on the way up, so the scheme liabilities will come down hopefully by more than changes in the scheme assets.
I bought a holding this morning.
Regards, Ram

Analysis

20th Nov '15

DTG

TIME FOR AN UPDATE?

the bumper interim figures might well spur another wave of optimism perhaps, when they get published in late Nov? - See more at: http://www.stockopedia.com/content/small-cap-value-report-8-oct-2015-nxr-abdp-flyb-dtg-107763/#sthash.j2ddZX0a.dpuf

Rusty2

29th Nov '15

Paul, You maybe interesting in this video of interview with ABDP MD: https://www.youtube.com/watch?v=gaZ2XfnWlns&feature=youtu.be

Small Cap Value Report (8 Oct 2015) - NXR, ABDP, FLYB, DTG

Norcros (LON:NXR)

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Paul Scott

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