Small Cap Catch-Up: All Heading Higher

8 mins. to read
Small Cap Catch-Up: All Heading Higher

Epwin Group (LON:EPWN) – Shares Trading On Only 6.8 Times Current Year Earnings And Offering A 7.3% Yield

With its shares currently trading at just 68p, they are on just 6.8 times its current year price-to-earnings ratio, which is less than half of the market average.

They are also currently on a 2023 forecast yield of 7.3% – which adds even more to the attractions of the group.

The Business – Organic And Acquired Growth

The group, which is capitalised at £99m, is a leading manufacturer of energy efficient and low maintenance building products, supplying the Repair, Maintenance and Improvement, new build and social housing sectors.

Established way back in 1976, the Epwin Group has changed significantly from its origins as one of the first PVC-U window fabrication businesses in the UK.

It floated on AIM in July 2014, since when it has grown both organically and by acquisition to become the leading manufacturer of energy efficient and low maintenance building products for the Repair, Maintenance and Improvement, social housing and new build markets in the UK.

The group serves the trade, retail, new build and social housing sectors through a nationwide network of merchants, plastics stockists, window, door and conservatory manufacturers and installers.

Its products are designed and manufactured in-house to suit the needs of our end-user markets and are sold under established and trusted brands. The group has a wide product range to cater for all requirements and is constantly investing and innovating in new processes, products and services.

The Extrusion and Moulding business (62.1% of group sales) is the UK’s largest manufacturer of extruded window profile, cellular roofline and cladding, rainwater, drainage, decking systems and GRP building components.

Epwin is the market leader in supplying leading brands of PVC-ue extruded cellular roofline and cladding systems for the replacement and installation of fascias, soffits, barge boards and cladding.

The Fabrication and Distribution business (37.9% of group sales) 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.

Trading Update – 31st July

Revenues to end June increased to approximately £180m, with the group continuing to trade ahead of a strong 2022 comparative.

After a robust start to the year, trading moderated slightly in the second quarter as macroeconomic factors and fiscal tightening impacted demand, however trading in the Group’s core markets remains resilient.

The inflationary pressures that have significantly impacted raw material costs over the last two years have continued to ease, although PVC resin prices remain at elevated levels.

Labour, power and other inflationary cost pressures continue to be managed through pricing.

With a headroom facility of £60m the group’s net debt was lower at £16.1m (end December 2022 at £17.9m).

The medium and long-term drivers of the market remain positive for the group, with a shortage of new and affordable housing, an ageing and poorly maintained housing stock and increasing concern about the quality of social housing all helping to bolster future demand. 

Management Comment

CEO Jon Bednall stated that:

“I am pleased to report that trading in the first half was in line with the Board’s expectations and ahead of a strong 2022. This is testament to the combined efforts of all my Epwin colleagues and I would like to thank them for consistently delivering a strong post-covid performance.

We remain confident of achieving our full year expectations and have a positive view of our future prospects despite the short-term macroeconomic headwinds. Looking further ahead, the medium and long-term drivers for the Group’s products remain positive.”

The Equity – Good Institutional Holdings

There are 144,926,511m shares in issue.

Institutional investors include Ruffer (16.0%), Unicorn Asset (7.67%), Otus Capital (6.85%), Janus Henderson (5.54%), AXA Investment (3.83%), Chelverton Asset (3.66%), Lombard Odier (3.13%) and Hargreaves Lansdown Asset Management (1.79%).

Two private investors hold significant equity positions – Anthony Rawson (14.0%) and Brian Kennedy (14.0%).

Brokers’ Views – Suggesting A ‘Fair Value’ Of 100p

After this week’s Trading Update analyst Graeme Kyle at Shore Capital Markets considers that the group’s robust demand for its range of products keeps it in line with his estimates.

His estimates for 2023 show revenues of £369.4m (£355.8m), with adjusted pre-tax profits of £19.0m (£16,5m), earnings of 10.0p (8.7p) but with an increased dividend of 5.0p (4.5p) per share.

Going forward Kyle’s figures for the year to end December 2024 suggest £387.5m sales this year, £21.8m profits, 11.2p earnings and a 5.6p dividend per share.

The next year to end December 2025 could see revenues rising to £379.9m, £22.2m profits, 11.5p earnings and a dividend of 5.7p per share.

Previously his discounted cash flow model has suggested a ‘fair value’ of 100p a share.

Over at Zeus Capital, their analyst Andy Hanson has slightly lower estimates, £360m sales, £18.1m profits, 9.5p earnings and a 4.9p dividend per share for 2023.

Next year he goes for £368.6m revenues, £19.8m profits, 10.2p earnings and .1p of dividend per share for 2024.

In 2025 Hanson’s figures forecast £377.8m sales, £21.1m profits, 10.9p earnings and a 5.5p dividend.

My View – Keeping Tight With Latest Target Price Of 94p

This group’s shares, which were up at 82.5p in February this year, have subsequently been down to 64p, but are now looking extremely appealing at just 68p – where they are trading on 6.8 times current year earnings and yielding a possible 7.3% for the year.

The Interims will be published on 20th September, when we should expect to get an even more up-to-date picture of current year trading and next year’s prospects.

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

(Profile 10.02.23 @ 75p set a Target Price of 94p)

And in other news…..

Mears Group (LON:MER) – Record First Half Points To £40m Profit For The Year

Yesterday morning’s announcement of its Interim Results to end June reported a record first half performance, while stating that its full year’s trading outlook is further improved.

The group’s shares have been up to 295p this year but are now looking a little softer at 263p.

The UK’s leading provider of services to the Affordable Housing sector revealed first half revenues up 8% at £525.6m, while its adjusted pre-tax profits were 18% better at £21.3m, its adjusted half-way earnings were 8% improved at 13.74p per share.

CEO David Miles stated that:

“We are delighted to deliver strong results for the first half year, with record levels of revenues, profits, and daily net cash.

This strong momentum is expected to continue through the second half, and we have today further increased our FY23 guidance.

The excellent financial performance is testimony to the strategic actions taken in recent years, our investment in resilient operating platforms.”

Commenting upon the group’s current trading and outlook it has stated that the positive start to 2023 has seen that momentum continued into the second half.

The group, which provides a range of services to individuals within their homes, managing and maintaining around 450,000 homes across the UK and work predominantly with Central Government and Local Government typically through long-term contracts, anticipates revenues for the full year of at least £1bn and an adjusted profit before tax of at least £40m.

The group’s shares closed 12.5p higher at 282.5p, valuing the group at £323m.

(Profile 21.06.23 @ 285p set a Target Price of 320p)

Aston Martin Lagonda Global Holdings (LON:AML) – Raising £216.1m In Placing At 371p A Share To Deleverage Balance Sheet

On Tuesday morning the luxury car makergroup announced that it had Placed 58,245,957 new shares at 371p each, representing some 7.9% of the existing shares prior to the Share Offering.

The four largest shareholders in the group, Yew Tree Consortium, Public Investment Fund, Geely International and Mercedes Benz have all taken up their shares.

Executive Chairman Lawrence Stroll stated that:

“This successful share placing builds on the actions we have taken to create shareholder value. Supported by the company’s improved financial position, the placing will allow us to meaningfully deleverage the balance sheet and accelerate our journey to become sustainably free cash flow positive.

The tremendous backing from our largest shareholders along with the strong appetite from institutional and retail investors also demonstrates the continued confidence in Aston Martin and our future direction.

I would also like to thank my fellow investors in the Yew Tree Consortium, PIF, Geely and Mercedes-Benz, for their support as we accelerate our vision to be the world’s most desirable ultra-luxury British performance brand.”

The net proceeds of the Share Offering will be used by the company to facilitate the early redemption of the Group’s existing second lien split coupon notes, due 2026, thereby enabling the company to operate with increased financial flexibility and improve free cash flow generation by reducing its interest costs, contributing to the delivery of sustainable free cash flow.

At the start of this week the group’s shares were trading at 395p, last night they closed below the Placing Price at just 360.5p, off another 16p on the day.

However, at that price I would suggest that as the group’s Strategy continues to show through its shares will respond positively.

Remember that Goldman Sachs has recently switched its stance on the shares, from Neutral to Buy, looking for 413p a share as its price objective.

(Profile 10.05.2023 @ 213.5p set a Target Price of 265p*)

And Finally ……

H&T Group (LON:HAT) – Rating Is Far Too Cheap To Ignore Before Figures

Next Tuesday (8th) sees the UK’s largest pawnbroking group declare its Interim Results for the six months to end June.

They should be showing very positively, with its Pledge Book running at record levels, with some £113m out against £85.1m last year.

The group recently announced that it has received an added financing facility, up to £50m from £35m, which should prove to be a booster for its loan activities.

Analyst Mark Thomas at Hardman & Co is looking for revenues, for the year to end December, to increase to £198m (£174m), lifting pre-tax profits up to £30m (£19m), jacking earnings up to 52.53p (37.15p) and its dividend up to 15p (12p) per share.

They have been up to 510p within the last year, however yesterday the shares closed the day 18p lower at 413p, valuing the group at £182m.

That is far too cheap a rating to ignore ahead of the figures next Tuesday.

(Profile 06.07.22 @ 332.5p set a Target Price of 400p*)

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

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