Epwin Group “exceptionally strong performance on the top line” says Zeus Capital (LON:EPWN)

Epwin Group plc (LON:EPWN) is the topic of conversation when Zeus Capital’s Research Director Andy Hanson caught up with DirectorsTalk for an exclusive interview.

Q1: Andy, it looks like FY21 has been a difficult year for a lot of businesses. What does today’s trading update tell us about the performance of Epwin Group?

A1: The company has performed exceptionally well this year when you take into accounts lockdowns and the impacts of COVID etc. so today’s trading statement just highlights how strongly it has traded.

So, they’ve said revenue for FY21 is £330 million year and that’s up 19% on FY19 so take out that COVID impact, you can see the strength of the recovery and demand for its products. A lot of that’s come through the RMI markets, consumers have not spent money on going on holidays, but have spent money on their houses and the Group is 60/70% focused on the RMI markets so it has really, really benefited from that.

So, an exceptionally strong performance on the top line.

Q2: So, revenues have been exceptionally strong, has this been reflected in profitability?

A2: I have to say yes, when you look at the recovery from 2020.

So, pre-tax profits were £5 million in 2020 and I’ve upgraded my forecast of £13.2 million this morning, we don’t have an exact number yet, we’ll wait for the FY results for that but you can see, the recovery and profitability.

It has been reflecting profitability, but then again there have been headwinds so logistics issues, supply chain issues, the cost of COVID have all meant cost of increased so margins are probably a little bit behind what I was expecting.

So, I still think looking forward, profitability could come through really strongly, but yes, the top growth has come through in profitability.

Q3: How do you feel then about the outlook for 2022?

A3: I’m still relatively positive. I think top line growth might be harder to come by in terms of the growth that that was achieved in FY21, but in terms of profitability, I’m still very confident that we’re going to get a 30% uplift in ‘22. Partly because I think the cost headwinds that I talked about in ‘21 should subside during certainly the second half of FY22 which should see those operating margins normalized to pre-pandemic levels, which should drive really, really strong levels of profit profitability.

So, yes, I’m still really positive on ‘22.

Q4: Can you put the good performance and solid outlook in a context of terms of valuation?

A4: I think Epwin Group shares still look really good value. It is the leading player in its market so it’s got exceptionally strong market share of 20% and the rating has come down dramatically as the profits have recovered in 21.

So, looking at 2022, it’s trading on less than 11 times FY22 earnings, it’s got a really strong dividend yield for investors who are after a strong yield so the yield is 4.7% and the balance sheet is almost ungeared. I think there’ll be net cash in a couple years’ time so that dividend looks really, really nicely underpinned.

I think at the moment the valuation is really appealing.

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