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Epwin – a half-year results further profit warning

By Steve Moore | Wednesday 13 September 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Epwin Group (EPWN) has announced results for the first half of 2017 emphasising as a first highlight “sound performance in challenging market conditions”. The shares have responded, er, currently approaching 4% lower to circa 70p…

Revenue was increased to £149.9 million, but on a like-for-like basis was slightly lower and pre-tax profit fell to £7.5 million (£10.1 million on an adjusted basis, from a prior year £11.1 million).

After particularly also a net £4.7 million working capital outflow, £3.9 million on acquisitions and £6.3 million of dividends paid, there was a £7.6 million increase in net debt to £28.2 million. Net current assets edged up £0.1 million to £3.5 million and non-current liabilities declined, though were still £18.4 million.

The company notes “market conditions, particularly in the key RMI market, remain challenging” and “significant input cost pressure on materials due to the weakening of sterling… will take time to pass on cost increases in current market conditions”. Uh oh.

It now “expects the full year performance to 31 December 2017 to be slightly below current market expectations” and “also now expects the financial performance of the group in the financial year to 31 December 2018 to be lower than the expectation for the current financial year”.

I previously noted expectations already slightly reduced on the April-announced results for 2016 – nomad and broker Zeus Capital having then reduced earnings per share forecasts from above 15p towards 14p and for next year from near 16p towards 15p. It is now looking for 12.3p this year (an adjusted pre-tax profit of £21.3 million) and now sub 11p next.

The broker also notes a forecast dividend per share of 6.65p (2016: 6.6p, H1 2017: 2.23p, up from H1 2016 2.2p) and considers that “the shares look to be discounting a great deal of the customer risk”. However, the company’s stated outlook, balance sheet and it from the same stable as the Entu disgrace, see the stock currently remain on my bargepole list.

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