Epwin Shares Ready To Move Positively
On the morning of Wednesday 10th April Epwin (LON:EPWN), the Solihull-based building products group, will announce its Final Results to the end of December 2023.
The Business
The Epwin business has grown and developed both organically and by acquisition over nearly 50 years to become a leading manufacturer supplying a broad range of PVC, Glass Reinforced Plastic, composite and aluminium low maintenance building products and services in the UK.
The group is the leading, vertically integrated, UK-based manufacturer of energy efficient and low maintenance building products with significant shares in its core markets, supplying products and services with strong sustainability credentials into the Repair, Maintenance and Improvement (RMI), new build and social housing sectors.
Two Main Segments
It operates through two segments, Extrusion and Moulding (which makes up 62.1% of group sales), and Fabrication and Distribution (37.9%).
The Extrusion and Moulding business is the UK’s largest manufacturer of extruded window profile, cellular roofline and cladding, rainwater, drainage, decking systems and GRP building components.
The Fabrication and Distribution business includes the group’s national network of plastic distribution outlets and window stores, complementing the group’s commitment to its independent distributor customers, as well as servicing specialist customer requirements with fabricated windows and doors from the group’s own profile systems.
Added value services include bespoke design and scheduling as well as plot and installation management for social and new build housing projects.
The Equity
There are some 143m shares in issue.
The larger holders include Ruffer (17.16%), Anthony Rawson (14.12%), Brian Kennedy (14.12%), Otus Capital Management (6.93%), Janus Henderson Investors (5.13%), Chelverton Asset Management (4.76%), AXA Investment Managers (4.39%), Lombard Odier Asset Management (Europe) (3.16%), Hargreaves Lansdown Asset Management (1.96%) and Abrdn Investment Management (1.48%).
Market Estimates For 2023
Guidance from the group has already given us the lead for the market to expect a slight dip in group sales at £348.2m (£355.8m), but with an improvement in adjusted pre-tax profits to £18.1m (£16.5m), lifting earnings up to 9.5p (9.0p) while hoisting its dividend up to 4.9p (4.5p) per share.
Confident Management Outlook For 2024
These imminent results indicate that the current drivers for the group’s range of low maintenance, energy efficient and recyclable building products are resilient and trading in the first weeks of 2024 has been in line with the Board’s expectations.
The Board remains confident of executing the group’s strategy and in the strength of the medium and long-term drivers of its markets, despite the short‐term macro-economic outlook.
Analyst Forecasts – Consensus Price Objective 132p
Analyst Andy Hanson at Zeus Capital is looking for the current year sales to rise to £356.4m, with a healthy £19.8m of profits, 10.2p of earnings which would double cover a 5.1p dividend per share.
Building upon those estimates Hanson sees £365.3m revenues next year, £21.1m profit, 10.9p earnings and a 5.5p per share of dividend.
Analyst Andy Murphy at Edison Investment Research is anticipating current year sales of £354.9m, £19.0m profits, 10.0p earnings and a 4.6p dividend per share.
Murphy notes that the company is cash generative, with its shares offering a 6% yield from a twice covered dividend, while trading on a 30% implied price-to-earnings discount.
Tom Fraine and Robin Speakman at Shore Capital Markets have current year estimates out for £357.0m sales, £20.1m of adjusted pre-tax profits, worth 10.4p in earnings and paying a 5.2p per share dividend.
For the 2025 trading year the analysts go for £367.7m revenues, £20.6m profits, earnings of 10.8p and paying out a 5.4p per share dividend.
Shore Capital’s analysts clearly state that:
“A key tenet of our investment case for Epwin has been the operating margin recovery.
We are highly encouraged by this morning’s news that it has return to pre-pandemic levels, despite difficult market demand conditions.
We see scope for further margin improvement when activity in the sector increases. Epwin shares trade on an FY24F PER of 7.0x. The FY24F FCF yield is 14.4% and the stock offers an FY24F dividend yield of 7.1%.
We see scope for a material improvement in earnings as market conditions improve and a share price rerating.”
My View – Totally Confident Of 94p Target Price
This group is the leading manufacturer of energy efficient and low maintenance building products, it has achieved significant market shares, and its main business is in supplying the RMI, new build and social housing sectors.
After some substantial hassles it has continued to effectively manage issues of labour, energy and other inflationary cost pressures, resulting in its margins now recovering to pre-pandemic levels.
The group clearly stated that it has continued to make good progress with its strategy, including continued operational improvement, new product development, integrating recent value-enhancing acquisitions and sustainability initiatives.
With its shares having traded over the last year within a narrow band of 63.00p to 83.00p, they have not proved to have been an exciting market play.
Currently trading at around the 77.5p level, the group is valued at £111m, which in my view is far too low a rating to be ignored, especially in front of the forthcoming annual results.
(Profile 22.08.19 @ 73.5p set a Target Price of 100p*)
(Profile 10.02.23 @ 75p set a Target Price of 94p)
(Asterisk * denotes that Target Price has been achieved since Profile publication)
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