Steady H1, building for the future

Continuing businesses delivered H125 revenues, in line with last year’s comparator. Underlying profitability was also similar prior to costs taken above the line from a couple of discrete actions in the period. Net debt rose to 1x EBITDA, being in line with H124, and the company’s strong balance sheet position allowed it to absorb short-term working capital movements. Management expectations are unchanged and Norcros remains keenly focused on delivering strategic progress to achieve targets set out in May.

The Norcros share price has substantially out-performed the FTSE All-Share Index YTD. Nevertheless, across our estimate horizon, Norcros still sits on valuation discounts to its peer group averages ranging from 40-50% on a P/E basis and 25-30% for EV/EBITDA whilst offering a 25% dividend yield premium. We believe that sector sentiment will improve and this will support share price progress generally but Norcros offers more than cyclical recovery in our view. As strategic action outcomes become more apparent (e.g. in EBIT margins) we would expect to see further share price outperformance for Norcros. Under our DCF approach, the current share price is equivalent to ‘steady state’ EBITDA of c£63m; so some progress beyond our FY27E estimate is being factored in but not yet the higher potential levels that we have highlighted previously.