Small Cap Value Report (7 Apr 2017) - EPWN, MOTR, FDL

Friday, Apr 07 2017 by

Good morning,

I'm planning to cover a few stocks from yesterday, since there is a lack of news today (ignoring the macroeconomic issues, of course!)



Epwin (LON:EPWN)

Share price: 106.4p (+2%)
No. shares: 142.5m
Market cap: £152m

Final Results

A strong set of results from this manufacturer of building products (windows, doors, decking, etc):


Final dividend is increased marginally to 4.4p.

Net debt also increases to £20.6 million.

Epwin has been pursuing growth by acquisition; all acquired companies are said to be performing well.

Outlook is a bit subdued:

"Whilst the long-term impact of the EU referendum result on consumer confidence remains unclear, trading in the current year has been in line with management's expectations.  Input costs have increased sharply as a result of the weakening of sterling since June 2016. However, the Group is continuing its efforts to mitigate this and the Board remains confident in the long-term fundamentals of the Group and the markets it serves"

The overall vision seems to be continuously expanding/improving the product range and ending up with vastly more cross-selling opportunities and economies of scale as a result.

And the statement makes a few interesting arguments to the effect that people aren't repairing and maintaining their properties as much as they should, so that a backlog of necessary repair work is being built up. They would say that, wouldn't they!

Like-for-like revenues (excluding acquisitions) grew by just 2%.

My opinion

Seems difficult to get too excited about this. On the one hand, it would be much too harsh to describe this as a commodity business - there is substantial expertise required in the manufacture of many of these products.

On the other hand, the company's admitted vulnerability to exchange rate movements, and the lack of like-for-like growth which is also due to factors beyond its control, leave me with some doubts about its underlying quality.

Regular readers will be aware that acquisition-led growth is something I instinctively shy away from.

Apparently I'm not the only one suffering from a bit of scepticism toward this share, as the PE ratio is undoubtedly very cheap versus the market as a whole, at less than 8x.

Stockopedia agrees that it's in the bargain bucket:


Motorpoint (LON:MOTR)

Share price: 150.75p…

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All my own views. I am not regulated by the FSA. No advice.

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Epwin Group Plc is a manufacturer of extrusions, moldings and fabricated low maintenance building products, operating in the repair, maintenance and improvement, new build and social housing sectors. The Company operates through two segments: Extrusion and Moulding, and Fabrication and Distribution. The Extrusion and Moulding segment is engaged extrusion and marketing of polyvinyl chloride-unplasticized (PVC-U) window profile systems, PVC-UE cellular roofline and cladding, rigid rainwater and drainage products and wood plastic composite decking products. It operates from extrusion and molding facilities in Telford, Tamworth and Scunthorpe, among others. The Fabrication and Distribution segment is involved in fabrication and marketing of windows and doors, distribution of cellular roofline, rainwater and drainage products, and manufacture of glass sealed units. It operates from over five window and door fabrication sites, and approximately two glass sealed unit manufacturing sites. more »

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Motorpoint Group plc is an independent vehicle retailer in the United Kingdom. The Company's principal business is the sale of vehicles, of which are approximately two years old and which have covered over 15,000 miles. The Company sells vehicles from brands representing vehicle sales in the United Kingdom, with models from Ford, Vauxhall, Volkswagen, Nissan, Hyundai, Audi and BMW. The Company operates from over 10 retail sites across the United Kingdom. The Company has a national contact-center dealing with online enquiries. In addition to sales of vehicles, the Company operates, a business to business online auction platform for vehicles. The Company also offers ancillary products to customers, including customer finance packages, vehicle guarantees, insurance products and vehicle protection treatments. more »

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Studio Retail Group plc, formerly Findel plc, operates in the home shopping and education supplies markets. The Company's segments include Express Gifts, Findel Education and Overseas Sourcing. The Express Gifts segment includes direct mail order businesses in the United Kingdom, offering online and through catalogue a range of home and leisure items, clothing, toys and gifts supported by credit offer. The Findel Education segment supplies resources and equipment (excluding information technology and publishing) to schools and educational establishments in the United Kingdom and overseas. The Overseas Sourcing segment includes sourcing office based in Hong Kong supplying importing services to various group companies and external customers. The Company's subsidiary Express Gifts Limited, includes Studio, an online and home catalogue shopping; Ace, an online store for home, living and garden needs, and Health & Home, an online store for beauty, home, office and garden accessories. more »

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

15 Comments on this Article show/hide all

Asagi 7th Apr '17 1 of 15

Dear Graham,

I own shares in Epwin (LON:EPWN). You wrote:

Net debt also increases to £20.6 million.

I would add that net debt was reported as £29.9m at the half-year stage:


Asagi (long EPWN)

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steviej 7th Apr '17 2 of 15

Don't know why you would buy Epwin instead of Safestyle.

But then I don't have either.

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daveinthelakes 7th Apr '17 3 of 15

Epwin (LON:EPWN) is a play on the housing market without the upside of the house builders that is why it always has a low p/e. If the housing market/economy collapses it wont just be Epwin's gutters that will be up against a brick wall.
In addition to the builders destocking the last thing a homeowner will replace in a recession are the gutters (unless they are leaking over the porch) or the double glazing.

Edit- Just spotted for those in Epwin that IC gave a positive tip for yesterday but then IC rarely looks beyond the figures which are good but I think the wrong time of the economic cycle for brick manufacturers and double glazing.

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Ramridge 7th Apr '17 4 of 15

Re Epwin (LON:EPWN) Companies in the property RMI (Repair, Maintenance and Improvement) sector such as Epwin are in a difficult situation,
The economic outlook is inflation, higher import costs due to sterling depreciation, squeeze on consumer spending. The low rating of this company is a reflection of this scenario post the Brexit decision.

Personally I am staying away from companies that rely on consumer spending, discretionary or otherwise, for the foreseeable future.

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Housemartin2 7th Apr '17 5 of 15

Re Motorpoint. I am very cautious about car dealers in general. The business model for them is that little margin exists on new vehicles but the money is made on second hand sales and on servicing. However there are going to be a large number of 2 and 3 year old cars starting to hit the forecourts as a result of the very successful personal leasing of new cars in recent years. I believe that this will squeeze margins on second hand cars across the market. So small margins on second hand joins small margins on new
I cannot really see Motorpoint being able to avoid this. Maybe they are better placed than some ?

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Graham Neary 7th Apr '17 6 of 15

In reply to post #179352

Thanks for that Asagi,

Good luck


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peterthegreat 7th Apr '17 7 of 15

In reply to post #179358

Hi steviej,
If of any interest, the reason why I bought Epwin (in addition to Safestyle) was in part because of its strong competitive position in a market in which it is a major player, if not the major player in the UK. This is confirmed by the fact that there was a Competition Commission enquiry into its merger with Latium in 2012 and its decent ROCE figures also suggest a satisfactory competitive position. Since 2012 Epwin has continued to make a range of acquisitions to strenthen its competitive position still further. I also like the fact that Epwin has a better balance between trade sales and retail than does Safestyle. I think Epwin is a company that some love to hate and I don't generally invest in cyclicals but I must admit I have made an exception with Epwin for the reasons explained above.

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AlanJenkins2 7th Apr '17 8 of 15

Sold my Epwin due to the importance of its relationship with Entu. I was concerned that Entu doesn't look that strong,and that at some point in the future the terms of that relationship might need to be revised in Entu's favour to the detriment of Epwin.

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JohnEustace 7th Apr '17 9 of 15

In reply to post #179382

I recently rather foolishly volunteered to buy my daughters next car on her behalf. I could barely bring myself to deal with the nearly-new car salesman, so irritating did I find his attempts to upsell me financing, warranties, insurance products, fancy polishing treatments etc etc.
They claim to make little margin on "the metal". That's just the lead for all the add-ons.

If I could have found an equivalent car for sale privately I would have driven a long way to buy it. But the dealers seem to have the market sown up because everyone buys on finance nowadays.

If Motorpoint are as good as their reviews they could do well.

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doublelutz 7th Apr '17 10 of 15

Regarding Epwin and Safestyle the latter seem to sell to private customers rather than to builders so I see this as a safer bet. It was not until around 12 years after we had double glazing installed that I realised that it lasts just long enough to avoid a claim under the 10 year guarantee but not long enough to start to need some replacements soon thereafter (my windows were not from Safestyle but I suspect they are all the same). If a window mists up then people get it replaced so the customers provide a sort of ongoing annuity of income to the industry.

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truegent 7th Apr '17 11 of 15

safestyle will probably end up buying epwin whilst epwin trades at this price !

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herbie47 7th Apr '17 12 of 15

In reply to post #179400

Not sure it is all the same, my last house never had any problems with misting even after 30 years yet other makes seem to be prone to it. Safestyle make their own I believe, not sure that includes the actual sealed units of glass or not. The problem with Safestyle is their selling tactics, don't ever let them get your number or if you do give them it make sure it's one you can easily change. If you need the units replaced you can get that done fairly cheaper, I know because my builder damaged one and got it replaced I thought it would be about £200 but he said it was only £25. All these companies charge high prices because of marketing, advertising and high commission to salesmen, check the car the sales rep drives.

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Wimbledonsprinter 7th Apr '17 13 of 15

In reply to post #179392

I also own Epwin (LON:EPWN), because of its high cash flow yield, high divs and low P/E. I agree that the link with ENTU is a cause for concern and would justify a lower multiple but the question is how big? I have taken some comfort that Entu has recently managed to produce a set of final numbers (admitedly 5 months after the end of its financial year) with a going concern statement. Also the exclusive supply agreement with ENtu runs to mid-2019.

Panmure Gordon has pointed out Epwin's large discount to Polypipe, Safestyle and Volution. Epwin has tended to trade on a similar low rating to Eurocell (which similarly sells into the PMI and social housing markets). But I note the recent strong rise in Eurocell stock, for which I do not understand the catalyst.

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doublelutz 7th Apr '17 14 of 15

In reply to post #179412

They certainly manufacture the double glazing units. Their last report refers to a new glass toughening furnace. Reviews on Feefo seem quite good on average with 4.4 out of 5.0 for over 700 reviews. I was in early on and it has been a good investment.

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nickwild 21st Apr '17 15 of 15

Epwin seem to be doing well in spite of the issues raised.

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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