Despite slower than expected sales growth, UPGS reconfirmed FY2020 profit guidance in a trading statement released today. Other features of H1 included extension of UPGS’s bank facilities and a 10-year addition to the Manor Mill lease. The company continues to monitor the effect of coronavirus closely, and its potential impact on sourcing from China. The central long-term growth message remains in place.
UPGS’s interim FY2020 trading statement reported 2.8% sales growth to £67.7m, which was beneath the forecast 5.0% run rate for the full year published in our 5th November 2019 report “Execution Strength Fuels Growth.” FY2020 sales guidance has been reduced accordingly, so as to be in line with the first half. We adjust our sales estimate downwards by 2% to £127m, which is consistent with 2.8% growth for the full year.
Yet the company reconfirms its FY2020 profit guidance, which implies that adjusted EBITDA margins will be slightly higher at 8.1% compared with 7.9% envisaged previously. These measures refer to pre-IFRS16 data, the adoption of which standard is in itself is expected to have an overall neutral impact on pre-tax profits this year.
Non-trading items that occurred in FY2020 H1 read positively. UPGS’s group banking facilities, that gave £13.2m headroom at end-January were extended until 2024. Moreover, a 10-year lease extension was secured at its Manor Mill premises in Oldham, Greater Manchester, which houses both Head Office and distribution, in anticipation of further sales growth related investment in the site. The group’s exclusive non-electrical products licence agreement with Russell Hobbs now lasts until at least 2023.
With the majority of its manufactured product sourced from China, UPGS’s Board is closely monitoring coronavirus developments and highlights that the extension to the Chinese New Year holiday of 9 days will cause production delays. That said, the company will take necessary steps to mitigate any disruption and highlights its extensive experience of managing supply chain disruptions in China, including virus related ones.
Importantly, despite slower expected sales expansion in FY2020, we maintain both our full year profit forecasts and confidence in the group’s long-term growth rate. Notably, UPGS’s trading proved more resilient than a number of UK consumer-facing companies in recent months. As a result, we continue to argue for a 100p share price, which would imply 9.6x FY2020 EV/EBITDA and an 11.8x P/E ratio.