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magazineThe small cap whose share price could rise 75%
Shares in bathroom fit-out specialist Norcros (NXR) look cheap despite the company delivering an eighth consecutive year of revenue growth in the 12 months to 31 March 2017.
At 173p, the shares trade on 6.1 times stockbroker Numis’ forecast earnings per share (EPS) of 28.5p for the year to March 2018. They also offer a prospective yield of 4.5%. The expected dividend payment is covered just over 3.6 times by forecast EPS, which is a very healthy ratio.
The discounted valuation suggests the market believes earnings forecasts cannot be achieved in the current macro-economic environment as well as concern about pension liabilities.
Chief executive Nick Kelsall tells Shares managing the pension liability, which fell from £97.8m to £62.7m in the second half of the latest financial year, does not impede day-to-day running of the business.
He is reassuring about management’s ability to achieve growth even in uncertain times as the company tries to increase market share.
Norcros’ best-known brand is probably the Triton range of showers. It is focused on the UK and South Africa. The South African operation, which Kelsall says was once a ‘problem child’ for the group, delivered 8% revenue growth at constant currency in the year to 31 March 2017.
The stock is attractively valued. Numis has a price targt of 300p. Implying nearly 75% upside for investors over the next year.
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