Epwin Group – Shares are looking very good value with 9x earnings and a 5.5% yield

Based in Solihull the Epwin Group (LON:EPWN), which was set up in 1976 and went onto AIM in 2014, is one of the UK’s largest manufacturers and suppliers of PVC windows, doors and fascia systems. It has some of the best-known manufacturing and service names in the sector.

Other businesses within the group also produce high quality cladding, guttering, decking and prefabricated GRP building components.

The £120m capitalised company’s products are designed and manufactured in-house to suit the needs of its end-user markets and are sold under established and trusted brands.

It is a leading manufacturer of energy efficient and low maintenance building products with significant market shares, supplying the Repair, Maintenance and Improvement (RMI), new build and social housing sectors.

Operations and Products

It operates through two segments, Extrusion and Moulding, and Fabrication and Distribution.

The company offers windows, doors, cavity closers, and curtain walling products, wood plastic composite decking products and panels, glass reinforced plastic prefabricated components, such as door canopies, dormers, chimneys, copings, bay window canopies, and bespoke components, fascias and cladding systems, rainwater, soil, and underground drainage products, bathroom panels/wall boards, and insulated glazing units.

It is also involved in the extrusion of PVC-u and PVC-ue materials as well as the supply of plastic building products.

The group is constantly investing and innovating in new processes, products and services.

Group sales

In the last year to end December the group enjoyed £329.6m of sales, of which Extrusion and Moulding handled 61.4%, while Fabrication and Distribution accounted for 38.6% of the total.

Epwin sells its building products in the UK (94.4% of its 2021 sales), in Europe (5.1%) and the rest of the World (0.51%).

The company serves social housing providers, new build companies, contractors, architects, designers and specifiers, specialist roofline and window stockists, window fabricators, roofline installers, window installers, rainwater and drainage wholesalers, bathroom installers, DIY retailers, general builders, and homeowners.

It operates a network of approximately 100 building plastic trade distribution centres, as well as window stores.

The Equity

There are 145.3m shares in issue.

Larger shareholders include Ruffer LLP (16.0%), Anthony Rawson (14.0%), Brian Kennedy (14.0%), Unicorn Asset Management (7.67%), Otus Capital Management (5.19%), Henderson Global Investors (5.07%), Chelverton Asset Management (4.25%), AXA Investment Managers UK (4.08%), Lombard Odier Asset Management (Europe) (3.13%) and Schroder Investment Management (1.68%).

AGM Trading Update

Last Tuesday the group held its AGM for its 2021 results, at which it issued its Chairman Andrew Eastgate informed shareholders that:

“I am pleased to report a continued strong trading performance in the first four months of the year, with revenues to 30 April 2022 15% ahead of a strong comparative period in 2021. Demand remains robust, particularly from the key RMI market.”

He went on to comment about higher material costs, especially in PVC resin. However good relationships with group suppliers have helped to ensure product supply, while the group has been able to pass on its added costs by lifting prices on its own products.

“The group continues to make progress in pursuing its strategic objectives, including value enhancing acquisitions, and expects to make further market share gains whilst managing the challenges that the current operating environment presents. The group retains a strong balance sheet and as at 30 April the group had in excess of £55m of headroom on its banking facilities.

The Board remains confident of achieving its expectations in 2022, whilst mindful of the widely reported challenging macro-economic conditions.”

Broker’s Views

Graeme Kyle, the sector analyst at the group’s NOMAD and joint broker Shore Capital, was encouraged by the positive Trading Update and by the report of robust RMI demand.

For the year to end December he sees £344.1m (£329.6m) of revenues, adjusted pre-tax profits of £16.6m (£13.7m), generating earnings of 9.2p (9.1p) and double covering a 4.6p (4.1p) dividend per share.

His estimates for next year and 2024, respectively are, £354.4m then £365.0m sales, profits of £18.5m then £20.1m, with earnings of 9.7p then 10.2p and dividends of 4.8p and 5.1p.

My View

This country has an ageing and under invested housing stock which is the base of Epwin’s robust customer RMI demand.

RMI probably makes up some 70% of the group’s sales, I do not see that reducing for some years yet.

It has a strong balance sheet and £55m of headroom banking facilities available.

Accordingly, I am hoping that the group will be announcing one or two earnings accretive acquisitions over the next year or so.

The interim Trading Update for the six months to end June, should be declared sometime in July.

At that time, I expect to see a continuation in last week’s positive news.

The group is progressing gently ahead, while its prospects look very good.

It is never going to set the world alight in stock market appeal, however with its shares currently trading at just 82.5p, they trade at a lowly 9.02 times earnings, with a handsome 5.5% yield.

They have traded above 121p in the last year and should be up there again soon.

(Profile 22.08.19 @ 73.5p set a Target Price of 100p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)