Another year of good growth delivered

UPGS’s pre-close FY2021 trading statement confirmed a strong end to the financial year with most key financial measures beating market expectations. Moreover, FY2022 appears to have started well despite ongoing headwinds. Sustainable growth is built on a focused brand portfolio (which now includes the whole Salter range), stronger distribution online and into supermarkets, plus further international progress. We upgrade our FY2022 profit forecasts.

Better than expected sales revenue, EBITDA, pre-tax profits, and net debt position were the salient features of UPGS’s statement, released today. In addition, the company confirmed that it had in mid-July completed the £34m acquisition of Salter, which it expects to be ‘’significantly earnings enhancing in FY2022’’ and that the integration was proceeding according to plan.

Given the better margin experience in FY2021 we upwardly adjust our profit forecasts for the FY2022 financial year. At this stage, we leave our sales revenue forecast for FY2022 unchanged. However, it may be worth noting that this is based on an underlying organic sales growth expectation of just 6% which would be well beneath the 11.5% compound growth rate which the company achieved in the 5 years to FY2021.

Today’s statement confirmed growth across all four strategic pillars - international, supermarkets, online channels and discount retailers - in FY2021. This occurred despite challenging conditions due to Covid-19 related disruptions to operations and shipping. In February 2021 UPGS raised its long-term target for online distribution as a portion of the total from 20% to 30%, despite online being only 4.2% as recently as FY2017. Within the important growth driver of international, Germany remains the largest contributor and appears to have performed strongest.

Brisk sales growth reflects effective brand management. Recent success with Beldray, Salter and licensed brand Russell Hobbs enhances our enthusiasm for the Salter acquisition and the company’s outright ownership of the scales and measuring led business. We highlighted key features of the Salter acquisition in our 25^th June 2021 report UPGS acquires UK's oldest housewares brand.

In the aftermath of the Salter acquisition, we raised our fair value for UPGS from 200p to 275p. This not only reflected the company’s increased consumer reach due to Salter and a higher portion of owned brands but also the hidden “option value” implied by its ability to make opportunistic and value enhancing strategic acquisitions.

We retain that fair value, at which the implied FY2022 EV/sales and P/E ratios would be 1.6x and 19.5x respectively.