Epwin Group (LON:EPWN), the manufacturer of low maintenance building products for the RMI, new build and social housing sectors, has released a brief trading update ahead of its AGM to be held later today. Trading in the initial months of FY19 has been encouraging, benefitting from new customer wins and contribution from recent acquisitions. The severity of the headwinds faced by Epwin, predominantly in the form of cost input pressures, over the last couple of years should not be underestimated. However, the outlook is brighter than it has been for some time with input cost headwinds moderating and price increases beginning to gain traction, alongside improving operational efficiencies from the significant actions taken by management. We see potential for margin expansion beyond that which is currently factored into our forecasts over the next few years. At last night’s close, the shares trade on an FY19 P/E of 7.8x with a prospective dividend yield of 6.5%. The potential for a re-rating remains, on 10.0x current year forecasts, still a discount to its peers, Epwin would trade at 105p, c.30% upside to the current price, and yield 5.0%.
Good trading indicates that Profile 22 is continuing to take share with new aluminium product coming on stream: Trading year to date has been encouraging and in line with expectations. The Window’s Systems business has continued to perform well, benefitting from new customer wins, following the 11% growth in FY18. Acquisitions Amicus Distribution (completed in March 2018) and PVS Decking (completed in January 2019), have been successfully integrated into the Group and are trading as anticipated. Operationally, Epwin is progressing to plan, with the launch of its new aluminium window system today. The business has consistently expanded its product range in keeping with its stated strategy despite the difficult conditions. This will become more apparent during FY19. The Group’s new warehouse and finishing plant in Telford is progressing and expected to be operational in early 2020.
Forecasts: Our forecasts are unchanged today, with the seasonally busier second half of the year remaining key to full year performance. The encouraging start to the year, alongside easing cost pressures and the benefit of price increases, we believe, creates a good chance of upside potential to our forecasts.
Valuation: Based on last night’s closing share price, the Group trades on an FY19 P/E of 7.8x, falling to 6.9x in FY20. The business is cash generative, allowing it to fund an attractive dividend, with a prospective yield of 6.5% for FY19. Year-end net debt is forecast at £25.2m, equating to 0.9x EBITDA, after accounting for the £2.5m recent acquisition of PVS decking.
