28-11-2017 01:31 PM - edited 28-11-2017 01:37 PM
Norcros PLC manufactures and markets showers, taps, bathroom accessories, tiles, and adhesives. You will know it from its range of Triton showers, and you may well know Johnson Tiles, too.
It is today capped at £145m, with 79.9m ord’ shares in issue. It currently swaps on a PE of 6.3 based on this years’ full forecast of 28.7p.
Shares offer at £1.81, and I think in the next 6 months are likely to hit £2.25, offering realistic upside of 24%. Below I outline why.
NXR has been steadily increasing its revenues, and this far booked 10.6p of earnings, and historically always returns a greater portion of sales in the second-half. I’d say it will achieve 21p earning in the next half-year, based on history, giving a full year EPS of 31p, around 10% above broker estimates.
To aid this growth, NXR has been buying complimentary services, most recently Merlyn Industries Ltd per its RNS 02/Nov/17. This was part-funded with placing new shares at £1.72, which were 55.7% taken up by existing shareholders, demonstrating a strong confidence and loyalty of its shareholders. NXR has a strategy to drive sales to the £420m mark by 2018, and this target is looking increasingly achievable.
Two brokers have BUY rated this outfit, with a target price of £3.07p (69% upside) so considerably higher than my own mid-term target of £2.25p
If NXR achieved FY18’s earnings estimate of 30.1p (and this seems highly likely on this years performance) and moved back to its three-year-average PER of 7.5 this gives an inferred price target of £2.25. Further, if it remains on track to produce revenues of £420m by EOY 2018, and can maintain its Operating margin of 7%, it could bring home PTP of £29.4m or 37p earnings, translating to £2.77 share price based on a three year average PER.
This could be further notched to the upside by stripping out cash (£17m)
The shares have been creeping up since April this year, and previously reached £2.25p in 06/15. NXR has been a notoriously boring and ‘slow’ company, and each share price rise has relented as stale holders have scaled down and sold their positions. That said, it is quite a thinly-traded stock, with an EMS of only 1,500 shares, so £2.5k roughly is all your quote is good for.
I think the increasing earnings opportunities from the bolt-ons, the stable and steady sales growth and profit margins and its small market cap all collude to offer an increasing chance of NXR shares breaking out and heading back to previous highs.
I note significant buying from the BoD with CEO spending £405k this month and major stake increases from Canaccord (9.65m held) and Hambro Capital Management (6.86m held). NXR are also held by Artemis – the same Artemis that have been stake building in RBG group. They seem adept at spotting undervalued small cap stocks See the recently rejected Stonegate offer, and Artemis' stake increases, esp since the offer was rejected).
I am long of this stock, and whilst holding I reap 4.1% dividend, covered 3.8 times. This stock is for those who are happy to play the waiting game for an eventual shift in focus once acquisition earnings kick-in, or a potential take out with the company trading at less than 10x EBIT.
These are my thoughts, happy for any sensible and informed dialog.
28-11-2017 03:35 PM
Thanks Dsou, this is not a 'follow me' recommendation, but is my attempt to put together a case and then allow others to provide constructive criticism. I am glad you found it useful. I have a bit of free time so may elaborate further.
Good luck on your investing journey
28-11-2017 04:47 PM
Nice to see a change from all those who sing useless technical analysis on forums, but can't trade .Only thing to bear in mind is the Indexes dropping short term can trigger a fall in all stocks, but this is unlikely to happen.
28-11-2017 08:59 PM
thanks for reading it. I also use technicals but like to ensure there is an underlying fundamental argument first, then then can use charts to time my buy an improve the pricing I obtain. However too much talk of indicators alone makes for very bland reading and I find it marginally unconvincing. Obviously on some asset classes like FX it is imperative.
12-12-2017 04:44 PM - edited 12-12-2017 04:44 PM
I've a fairly strong conviction this could soon break out upwards. I note it was also tipped at the weekend in IC as 'clearly undervalued'
I've got more info which will be posted in due course.
09-01-2018 11:44 AM
We say that Twitter broke out to new highs, in this thread,
Is Norcros about to do the same? here is the weekly and daily charts:
I have highlighted a surge in volume during November 2017,
Also to be aware the company's CEO spent £405,000 on share purchases at the end of November, after the surge in volume.
16-01-2018 04:34 PM
My last call on this was when the price was 184p. The price has since further increased, and looks to be breaking out to new highs.
I have highlighted the £405k director buy 23-Nov-17 CEO N Kelsall.
23-01-2018 01:07 PM
It does feel like something is stirrnig here. Loking at L2 today (23 Jan 18) there is a lot of buying going on, and I think the price being shoved about (down_ to accomodate it.
Look what I have highlighted below, a trade of 162k shares, 50k shares.
22-02-2018 10:23 AM
this is taken from Shares magazine. supports the notion that SA trading enterprises may seek to benefit from a reinvigorated economy now former president Zuma has been removed from post. NXR derives some 30% of revenues from SA presently.
22-03-2018 10:12 AM
For what it is worth I think this looks interesting. There has been a channel moving up which favours your bullish case. I think you may see a short term pullback / sideways move coming off the upper trend line but longer term I like the general price action.