Mark Watson-Mitchell looks at two companies to buy within the construction sector – Michelmersh Brick and Norcros

Part 2

Norcros (LON:NXR) – Also Looking Ready To Recover

Based in Wilmslow, Cheshire and employing some 2,100 people, this company is a market leading group of brands specialising in design-led, sustainable bathroom and kitchen products across the UK, Ireland, South Africa, and select export markets.

The company’s product ranges include the renowned brands, Triton, Merlyn, Grant Westfield, Vado, Croydex, and Abode in the UK, and Tile Africa, TAL, Johnson Tiles South Africa, and House of Plumbing in South Africa.

The recently announced Interim Results for the six months to end-September, showed group revenues down 6.5% at £188.4m (£201.6m) while its underlying pre-tax profit was 9.4% lower at £16.4m (£18.1m), dropping its earnings by 9.6% to 14.1p (15.6p), but with an increase in the dividend to 3.5p (3.4p) per share.

Like almost anywhere within the global construction sector, the trading environment for the group in the first half was ‘challenging’ – however the group has stated that it is well positioned for any market recovery in the new house build and the Repair, Maintenance and Improvement (RMI) sectors.

CEO Thomas Willcocks stated that:

"In a weak market during the first half of the year Norcros has again grown share and made further strategic progress.

While the demand environment is expected to remain challenging, we remain focused on the significant market opportunities available and are confident that our leading positions and strategic implementation will continue to deliver market share gains.

As far as the outlook is concerned the group declared that the continued implementation of its growth strategy means that it is well-placed for further share gains in its targeted mid-premium RMI market segments and any recovery in this and the new house build sector, where the group holds leading positions.

It stated that market share growth is increasingly being delivered through a strong focus on sustainable new products and a more efficient and customer-focused operating platform.

It summarises by saying that there remain significant opportunities across the group’s geographies and, despite market conditions, it looks forward to further progress in the second half of the year. 

“The Board therefore expects full year underlying operating profit to be in line with market expectations showing further progress towards achieving our medium-term targets."

Analyst Andy Hanson at Zeus Capital rates the group’s shares as a Buy, with a medium-term Price Objective of 479p a share.

He is estimating current year revenues to end-March 2025 of £366.7m (£392.1m) with adjusted pre-tax profits of £36.5m (£36.4m), easing earnings to 30.8p (32.1p) but with an improved dividend payment of 10.4p (10.2p) per share.

For the coming year he looks for £372.8m sales, £39.2m profits, 32.7p earnings and a 10.5p per share dividend.

The shares, which are currently trading at around 253p, valuing the group at £227m, look to me to be an excellent purchase, especially if, like me, you have any faith in the building sector.

(Profile 20.08.19 @ 214p set a Target Price of 321p*)

(Profile 20.06.24 @ 219p set a Target Price of 260p*)

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