UP Global Sourcing Holdings
Ticker: UPGS Exchange: LSE www.upgs.com

Established in 1997, UPGS has evolved from a local business into a global success. They develop new, innovative concepts and bring professional, sought-after products to the mass market. Their offices span two continents, with headquarters in the UK, Hong Kong, Guangzhou, and Belgium.

Brands positioned for sustainable growth

A strong performance from the group’s largest brand, Beldray, further growth in the online and supermarket channels, and the ability to offset increased Chinese shipping rates were key features of UP Global Sourcing’s FY2021 trading statement. Moreover, the company’s financial position continues to improve with both relatively low year end net debt and ample facilities headroom. We raise both our sales and profit forecasts in this report.

UPGS’s sales revenue increased by 11.4% to £75.4m in the six months to end-January 2021. Moreover, net bank debt shrank to £1.5m from £3.8m at the end of FY2020 and £11.2m at the same stage a year earlier. The company announced funding headroom of £25.5m. Cookware, laundry, cleaning, floor care and kitchen electrical products all traded strongly.

Today’s announcement included raised guidance for the FY2021 financial year. Having increased our forecasts as recently as 14th December in a research update Beldray Leads the Way, we raise our FY2021 sales estimate again from £130.5m to £136.8m and our FY2021 profit forecast (EBITDA) from £12.4m to £12.8m. If our assessment is correct, the company will have recorded a 5.6% compound annual sales growth rate since 2017 – itself a strong year.

Beldray’s strong performance is consistent with the company’s brands being well positioned for further growth. Indeed the brand represented 28% of group sales revenue in FY2020 and encapsulates UPGS’s ability to deliver attractive “feel good” brands at affordable prices. Moreover, Beldray’s success augurs well for the smaller owned brands Intempo, Progress and Kleeneze (which combined were 9% of group sales last year) and also for licensed brands Salter and Russell Hobbs: 22% and 10% respectively.

Brisk sales growth in the online and supermarket channels tends to confirm positive brand management in our view. These channels rely heavily on brand strength to grow, largely because they arguably offer a more “level playing field” between competing brands as well as in the supermarket channel having effectively to fight for retail selling space.

Fair Value

The valuation of UPGS remains undemanding. Based on our revised estimates, UPGS trades on a 0.9x EV/sales ratio and its shares on a 13.4x prospective P/E ratio. Moreover, given the company’s growth credentials, a 3.8% yield looks attractive. We continue to argue at this stage of growth for a current fair value of at least 150p / share, which is 11% above their current level.

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