Small Cap Report (11 Apr) - NXR, XAR, SRT, PLA, VLX

Thursday, Apr 11 2013 by

Pre 8 a.m. comments


Good morning! The year end (31 Mar) trading statement from Norcros (LON:NXR) has been issued, and doesn't seem to contain any surprises. This is an interesting company which looks significantly under-valued to me, since its peers are typically on a PER of about 17 (pricing in some economic recovery/growth), whereas Norcros has languished on a single digit PER for a long time, although the shares have risen nicely they still look good value to me.

Norcros manufacture and distribute Norcros showers, Johnson Tiles, Norcros Adhesives, and following a very recent acquisition, Vado taps & fittings. They operate mainly in the UK and S.Africa - interestingly Southern Africa being a good growth area at the moment apparently.

Group turnover rose to £210m (up 5% vs prior year, and up 10% on a constant currency basis), and this is all organic growth because Vado was only acquired on the last day of the financial year.

Underlying operating profit is a creditable £13.0m (versus £12.1m for 2011/12). I am impressed with how Norcros makes a fairly steady 5-6% operating margin, having done its restructuring a few years ago after the credit crunch saw it get into hot water (geddit?!!) loaded up with too much debt after a disastrously ill-timed IPO in July 2007.

Bear in mind that NXR has quite a large depreciation charge, so the underlying EBITDA is c.£20m. This should enable it to repay debt fairly rapidly, although in the short term net debt has risen to £31m (well within newly enlarged £70m bank facilities (some of which will be for Letters of Credit, Forex hedging purposes, but I don't know the breakdown).

However, they also own freehold property with a net book value of £28.2m at 31 Mar 2012, so I tend to offset that against debt in my calculations. One should also consider the large pension fund, but this was 94% funded as at 30 Sep 2012, so a relatively small £22.3m deficit. That will be a volatile figure, but QE has exaggerated all final salary pension scheme deficits, so the likelihood is that it will reduce or disappear altogether once bond yields normalise (as that affects the present value of how liabilities are calculated). It's also a mature scheme, so will dwindle in size over time.

The pension scheme…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

Do you like this Post?
12 thumbs up
0 thumbs down
Share this post with friends

Norcros Plc 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. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

Xaar plc is engaged in the development of digital inkjet technology and manufacture of piezoelectric drop-on-demand industrial inkjet printheads. The Company's segments are product sales, commissions and fees, and royalties. It offers a range of industrial inkjet printheads and printhead systems, which are designed and produced to meet the customer-driven requirements of a range of manufacturing applications. Its primary markets include wide-format graphics, ceramic tiles, labels, packaging, coding and marking, three-dimensional (3D) printing, advanced manufacturing and decorative laminates. The Company sells its technology in component form (the printhead) to original equipment manufacturers (OEMs) producing and selling the complete digital printing solution to the end market. It partners and co-develops with fluid suppliers, hardware and software integrators, and substrate suppliers to deliver a total solution to the end user. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

  Is LON:NXR fundamentally strong or weak? Find out More »

19 Comments on this Article show/hide all

MrContrarian 11th Apr '13 1 of 19

SP is down probably due to the £3m charge taken because they have not been able to shift three leased properties. Also £1.5m costs while buying Vado. I hold.
Otherwise OK.

| Link | Share
Boros10 11th Apr '13 2 of 19

and the £3m charge will continue until these leases can be got rid off and then there is further pain in the form of generous reverse premiums paid to the incoming tenants.

| Link | Share | 1 reply
shanklin100 11th Apr '13 3 of 19


If you do speak with anybody at NXR, or its detailed in the broker note you referred to, it would be interesting to know how long the leases on the two empty properties have to run.

Thank you, Martin

| Link | Share
shanklin100 11th Apr '13 4 of 19


This RNS from 31-May-11 seems to provide the most recent uodate re the 3 leases mentioned in todays RNS

Hopefully NXR can provide details on the duration of these leases and the associated potential for future exceptionals. Hopefully the positive activity on other property assets will at least net out with the negatives here.

Cheers, Martin

| Link | Share
alterego 11th Apr '13 5 of 19

Paul, regarding the SRT RNS, the Identifier product is unique to SRT. It is a low cost, rechargeable, battery powered, demountable unit designed to provide basic AIS functionality for small boats, like fishing vessels. It's major selling point is that the location of the boat, and crucially the identity of the boat, can be tracked by the local authority.
In India, the government has built a coastal AIS monitoring network in the wake of the Mumbai attacks which were seaborne and plan to require all small boats to be fitted with an Identifier. Currently, 500 units are being trialled there to finalise any customisation that may be required before placing bulk orders.

In Mexico, the government with backing (and no doubt some financial incentives) from the USA has begun to roll out a mandate for boats to be fitted with the Identifier to counter people and drug smuggling across the US border. SRT have already received the first sizeable order here.

No detail has been given about the underlying mandate for this latest Middle East order but the inference is that further bulk orders will follow, hence the RNS.

The Identifier has multiple uses. It has been fitted to Icebergs for tracking and used to locate fishing nets/pots. It is however, just a small part of the range of products sold by SRT so in itself is not a "company maker". The more significant point here is that AIS is being deployed around the globe in ever increasing numbers for a variety of reasons, safety, national security, piracy prevention, hazard identification, vessel movement management, port logistics, etc, etc.

SRT have spent several years developing a family of products to suit all pockets and all applications. Their products are world leading in terms of performance and price. As a shareholder, I'm expecting to see the reward for their efforts unfolding over the next year or two with a succession of sizeable orders to add to the growing day to day core business, which is believed to be in the region of £10m revenue per year. With profit margins targeted at 50%, I expect the market cap to adjust significantly north over the coming months. All IMO of cousre DYOR as ever.

| Link | Share | 1 reply
mike99 11th Apr '13 6 of 19

SRT is clearly turning the corner into increasing sales and profits. This year alone SRT has announced $7m dollar orders from USA as well as a tie up with a major USA company to launch SRT's full suite of AIS products under the Hummingbird label. Also as mentioned above India and now the Middle East will soon be ordering significant amounts of ais products from SRT. Over the last year or so SRT has been accused of Jam tomorrow but tomorrow now looks like it is arriving this year. Other big markets on the go for SRT are EU fisheries, Russia and china.

| Link | Share
Paul Scott 11th Apr '13 7 of 19

In reply to post #72399

Good point about the leases at Norcros (LON:NXR), I'll do some more digging on that.

I tend to disregard factors which do not affect the long term earnings potential of the business, this might warrant a say £3-6m adj to mkt cap, depending on the terms of the leases.


| Link | Share
intuitive6191 11th Apr '13 8 of 19

Paul - as always I enjoy your daily wrute up. Just one point.

You say that the average life of a bathroom suite is 7 years. This is because many people have replaced perfectly good suites with new ones out of vanity and fashion - fueled by the supply of easy and cheap credit. Left to its own devices a bathroom suite could last for 30 years or so.

I doubt whether we will see a return to such wasteful living in the near future.

| Link | Share | 1 reply
Paul Scott 11th Apr '13 9 of 19

In reply to post #72403

Thanks Alterego. I am warming to Software Radio Technology (LON:SRT), as they do seem to be delivering now, after some false starts. I wonder what the competitive landscape is like? The technology sounds fairly basic, so is there not a risk that it will plummet in price as competitors join in?


| Link | Share | 1 reply
Paul Scott 11th Apr '13 10 of 19

In reply to post #72408

Hi Intuitive,
Good point about bathrooms generally, but electric showers which is a big chunk of Norcros's business do "fur up" internally in hard water areas, so have to be replaced.


| Link | Share
mike99 11th Apr '13 11 of 19

In reply to post #72409

Hi Paul, SRT claim that competition is way behind and that their software is encrypted and not copiable. SRT also claim to have an 80% market share for the class A and Class B products and 100% re their Identifier. The sp is very cheap and this current year they could do £20m turnover (broker forecast light at £15m I reckon). With 50% margins the profits will climb fast.

| Link | Share
Asagi 11th Apr '13 12 of 19

Northbridge Industrial Services (LON:NBI) reported 2012 prelims this morning.

Revenue (with acquisition) up 23.7%.
Revenue (without acquisitions) up 14.9%.

Basic earnings per share based on the average shares in issue during the period was 24.0 pence (2011: 15.1 pence). Net cash generated from operating activities amounted to £8.4 million (2011: £4.8 million)... At 31 December the Group had net gearing, defined as the ratio of all short and long-term financial liabilities less cash held to net assets, of 44.2% (2011: 39.5%). Excluding the investment in the new freehold property, which was acquired during the year, net gearing was 39.9%.

That new freehold property, I understand, was a steal.

Final dividend up 10%, meaning the payout for the year at 5.425p is up 8.5%. For 2007, it was 2.9p.

The first quarter of 2013 has started well with a number of large contracts continuing to run on from last year. In addition further new contracts have been won which should commence in the first half of 2013. We are still experiencing delays in the projected start dates of certain contracts, but with increased demand we are better able to manage our utilisation. Further hire fleet investment is planned for this year and we expect that our additional production capacity and additional marketing activity will lead to continued growth.

Stockopedia this morning has a 2013 estimate of 31.5p. Shares are currently 328p to buy.

Asagi (no position)

| Link | Share
alterego 11th Apr '13 13 of 19

Paul, the competitive situation for SRT is very benign. That's not to say it cannot change of course but there are a number of reasons to be fairly relaxed about this. Firstly, SRT have very up to date products, in fact one, the AtoN (Aid to Navigation) which fixes to market buoys to warn of a reef or wreck is brand new and about to go on sale. It uses 50% less power than the next most efficient unit currently available which gives it a big competitive advantage.
SRT have based their new product releases on a new core architecture using a processor board the size of a credit card. This reduces cost and allows considerable customisation of function since the S in SRT stands for Software i.e. they control the radio functionality by software not hardware. One example recently was to customise units to use the Russian GPS system GLONASS as required by Russian users. This took weeks rather than years.

SRT also have a network of 90 or so customers with sales outlets around the world with almost all of the major brand names selling units which use SRT made components or in many cases SRT boxes with a name badge change only. In Class A, the type of device used by large vessels, they claim a 90% market share. This dominance is based on having built up relationships with resellers over several years, often with exclusivity. Competitors would have to break this down in order to build their own sales and given the cost of developing the underlying technology, the pay back period may deter them from trying.

AIS is a heavily prescribed technology that limits competing technologies so anyone trying to gain a large market share must compete on price or functionality or both. Unlike sales of consumer technology where production runs of a few million are common, AIS is not large volume on that scale. Development costs are high because cheap and cheerful will not pass the exacting specification conformity tests. Just as an example, SRT built some test decks to test their kit and each one costs several hundred thousand pounds - I think they needed six. That costs has to be recovered by selling lots of kit so this is not a market where you are likely to see lots of major players. More likely it will remain a niche, a very profitable niche, for a few at most and since SRT have gained the initial lead, it's theirs to lose; a fact which they are acutely aware of. I am sure R&D will remain a key part of their business strategy.

So far as the niche and it's profitability is concerned, just consider that the USA alone spends something like $27m a year of AtoN hardware. The worldwide market is estimated at £200m. SRT's market cap is about the same as the potential annual revenue from the USA for this one product.

My personal view is that any serious minded competitor would find it cheaper and quicker to buy SRT than to try to out-develop them.

| Link | Share | 1 reply
Donuts R Ace 11th Apr '13 14 of 19

RE: NXR , one of the big builders I'm subbying on at the mo is all NXRs wall and floor tiles probably around 1500m² - 2000m² per site plus they specced some of the their adhesive as well. The house bashing side of the industry certainly seems to be motoring from where I see it at the moment , don't know how long it will last tho'.



| Link | Share
Beginner 11th Apr '13 15 of 19

Just to bring a bit of a debate element along, while I think Norcros (LON:NXR) will do well as a share, I would like to say that the Triton showers they produce are far from the best on the market. Mira (manufactured by Kohler) seem to me to be a far superior product (though I have admittedly fitted few of these appliances at all). Mira have integral filter elements which cut down on clogging, and are easily replaced. Their general construction is also more robust. As for the Johnson tiles side, the recent contract to supply materials to B&Q is not really a great recommendation. Perhaps more store should be put by the fact that Homebase (Home Retail) seem to be stopping stocking them (or at least my local branch is). The recent acquisition seems to be a bit more upmarket, but I am not familiar with them at all. It seems to me Norcros may be taking a lower position in the UK market, sacrificing quality for quantity. That may not help in the long run. This could in turn push them back on their South African operations for profits, something that I personally would look upon with a little unease. Perhaps this is a case of the figures being better than the story.

| Link | Share
djpreston 11th Apr '13 16 of 19

Interesting post beginner.

For what is worth, i used to make Mira electric showers during my summery holidays - dad was the MD.

Yes, the quality is fat superior and that does carry a suitable Mark up do budget conscious people may look to the cheaper norcros options.

Paul is spot on though about the effect of limescale. Some units were solid. It really affects the performance and of course is very costly as it takes a lot more electricity to heat the water. Boiler owners take note.

Installing a water softener is very very sensible for anyone, especially if you have hard our even "normal" water.

Rant/lecture over.


Fund Management: European Wealth
| Link | Share
Beginner 12th Apr '13 17 of 19

Thanks djp. This is really useful and interesting. I am just never sure whether in a recession consumers buy on price or quality. My mum always used to say 'only rich people can afford to buy cheap clothes'.

| Link | Share
jraitt 17th Apr '13 18 of 19

In reply to post #72415

Paul - I know you like good communication from Companies to Investors

todays web-cast already up for those that missed it this morning


| Link | Share | 1 reply
Paul Scott 18th Apr '13 19 of 19

In reply to post #72560

Thanks John,

I shall peruse that with interest. SRT does seem to be coming good. I was sceptical a while ago, but recent newsflow has been much better.

It was also great to see you tonight at the ED evening!

Cheers, Paul.

| Link | Share

Please subscribe to submit a comment

 Are LON:NXR's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis