The Triton brand has ditched the debt in favour of dividends.
I reckon most have heard of Triton showers; in the UK, it's a strong brand. So when its parent company, Norcros (LSE: NXR), showed up on my favourite share screen, I was keen to find out more about it.
The idea behind the screen is that robust dividend cover could indicate growth potential, so it looks for a decent, well-covered dividend yield and modest debt.
Tempting metrics
According to covering-analysts' forecasts, at today's roughly 10p share price (market cap: £59m), the FTSE Small Cap company is on a forward yield of 4.2%, four times covered by earnings, for the period that finished at the end of March. The latest balance sheet shows net gearing of about 25%.
At current levels, you can pick the shares up for forward earnings multiples of 5.6 for 2012 and 5.3 for 2013, for expected growth of 12% and 6% respectively.
Those metrics look tempting right now, but it hasn't always been that way.
Turbulence since flotation
As well as showers, Norcros manufactures and distributes tiles and adhesives, with around 58% of revenue from the UK, 37% from South Africa and 5% from the rest of the world.
It's a business that is sensitive to consumer sentiment, and recent weakness in demand for its goods has seen the share price retreat some 40% since last year's highs, which could be presenting optimistic investors with a buying opportunity.
Indeed, in common with many others in recent years, the company has been investing to streamline its operations with a strong focus on cash flow. When it listed on the London Stock Exchange in July 2007, the company raised a net £72m from institutional investors, mainly using the cash to pay down debt.
The timing couldn't have been more disastrous for early investors as, almost immediately, the credit crunch and recession took its toll on the business. There was a further capital raising in December 2009, which saw a net £28m, or so, raised, disappear down the drain of debt reduction, and left existing shareholders owning around 25% of what they owned before.
Improving figures
Since then, the business has been trading quite well as the figures show:
| | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|
| Revenue (£m) | 162 | 168 | 154 | 170 | 196 |
| Net profit (£m) | 4.9 | 9.5 | (6.3) | (10) | 6.7 |
| Net cash from operations (£m) | 6.2 | 9.2 | 3.8 | 7.6 | 9.2 |
| Diluted earnings per share | 9.1p | 7.4p | (4.5p) | (3.4p) | 1.2p) |
| Dividend | 0 | 3p | 0 | 0 | 0.36p |
The dip in cash flow and profits that prompted the second call for investor cash can be seen in the 2009-10 figures. The diluted share base shows in the reduced earnings and dividend per share figures after 2009.
I do find the post-2009 revenue and cash flow progress to be encouraging. Indeed, free cash flow covered the 2011 dividend payout around 12 times.
It's interesting to see the balance sheet progress, too:
| | 2007 | 2008 | 2009 | 2010 | 2011 |
|---|
| Net assets (£m) | (16) | 59 | 50 | 71 | 79 |
| Borrowings (£m) | 117 | 50 | 53 | 20 | 18 |
| Cash (£m) | 4.1 | 3.3 | 7.3 | 3.9 | 7.7 |
| Net gearing | High | 79% | 91% | 23% | 13% |
We can see the effect of converting debt to shareholder equity in the rising net asset figures, and in the falling borrowings figures. Again, it's encouraging to see that debt reduction and cash accumulation has continued beyond the last fund raising event in 2009, suggesting benefit from operational cash flow.
Outlook
The reinstatement of the dividend, and the directors' commitment to growing it, seems to suggest their confidence going forward.
Most recent company guidance came with a management statement on 16 February where the directors' acknowledged that consumer confidence had become weaker, but thought that Norcros would continue to gain market share and make solid progress.
As it is relieved of the burden of most of its previous debt, and occupies a leading market position, I think the company looks interesting as a cyclical investment that could grow as consumer sentiment improves going forward.
I'm putting this one on my watch list and will be looking out for the full-year results, due in June, to see if progress has continued.
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