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Products firm is an AIM income play Returning to the market in July 2014, Epwin is a longestablished provider of specialist building products, mostly to the residential construction/ maintenance industry. Epwin sells the type of products that people expect to buy just once. This includes guttering, window frames, door frames and composite doors. Epwin is a business-to-business company, not a retailer. Customers include private residential developers, housing associations and contractors. The company employs 2,600 people in the UK, with its head office in Solihull and largest site at Tamworth.

significant operating margin improvement was delivered For the year ending 2015, Epwin reported profit before tax of £18.6m on revenues of £256m. While this was broadly flat on the previous year, a significant operating margin improvement was delivered, rising from 7.1% to 7.9%. Further progress in 2016 has already been signposted, thanks in part to the acquisitions of Stormking (entrance canopies, bay window roofs, chimneys) and Ecodek, a manufacturer of composite decking materials. These two acquisitions are expected to deliver

around £30m of revenue in 2016. Epwin ended 2015 with £14.4m of net debt, as a result of a total cash spend of £20.9m on Ecodek and Stormking. Further acquisitions remain part of management’s growth strategy. Both debt and paper were used to finance Ecodek and Stormking. Epwin has a £60m debt facility through to December 2019.

17% EPS forecast increase for 2016 The acquisitions, plus margin improvements, have inspired a 17% EPS forecast increase for 2016. Growth is forecast to moderate in 2017, with EPS advancing 6%. Perhaps the most notable point is Epwin’s status as an AIM income play. The 50% increase in dividend announced with final results puts Epwin among a small number (sixteen at the last check) of AIM companies that combine modest size (over £100m market cap) with a dividend yield greater than 4%. It is obvious from the product range that Epwin is sensitive to the number of new homes being built in the UK. Second, the improvement market is driven by consumer confidence and the housing market — conservatories etc. are more likely to be added if it is believed that they will add value to the home. That leaves Epwin shares looking

less geared effect on profits than housebuilders a light play on the UK housing market, with a less geared effect on profits than housebuilders. The debt position is modest and Epwin has firepower to secure further growth through acquisition. The acquisition history also demonstrates the value of Epwin’s stock market listing, with shares having been used to fund both Stormking and Ecodek. Althought recent results highlighted tougher market conditions experienced in the second half of 2015, management confirmed that trading thus far was in line with expectations and that Epwin is well set for ‘further advances in 2016’. The shares have fallen slightly in the last month, pushing the valuation to a level that may attract traditional value investors. Epwin Group (LON:EPWN) FOR Large scale Strong market position AGAINST Modest growth sector Commoditised products Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£176m 125p:128.75p 9.2 5.3% 112p:155p


May 2016 AIM Prospector  
May 2016 AIM Prospector  

Featuring *NINE* AIM companies: Cerillion, Conviviality, Epwin, K3 Business Technology Group, idox, Mattioli Woods, Mulberry, Nichols and Yo...