Balancing sales growth with cash flow generation - Interim Results

Stable profits (EBITDA) and a marked reduction in bank debt were key features of Ultimate Products’ (‘UP’) interim results, released today. The company also announced its intention to buy back up to 10% of its shares. FY2024 full year results are expected to match current market expectations.

With revenue expansion likely to resume in H2 2024, and continue into FY2025, we argue that UP is more than capable of generating sales growth and free cash flow simultaneously. 

Underlying 6% sales growth, a robust portfolio of six Premier Brands, the ability consistently to convert profits into cash and the prospect of a buyback programme support our view that UP’s shares merit a valuation significantly in excess of current levels. With a keen eye on relative valuation, we base our unchanged 250p fair value on 1.3x EV/sales, 10.3x EV/EBITDA and 14.7x P/E ratio. At this share price the dividend yield would still be 3.4% - i.e. in line with peers.