7:59 cut – UPGS

UPGS (Ultimate Products Global Sourcing) design and import consumer goods to be sold under their own 2nd/3rd tier brands and under licenced 1st/2nd tier brand names mostly in UK / European discount stores and supermarkets.

This is another example of a company that started performing badly soon after flotation with the share price falling from over 200p to around 30p after a couple of profit warnings. They could still be bought at below 40p as recently as December 2018 when forecasts were for 5.6p FY 2019 EPS.

Today they announce EPS for H1 alone of 5.7p with reported revenue up 36% and profits up close to 50%.

They re-iterate some specific one-off factors in this growth (under the section “TRADING”), coming up with a normalised revenue growth of 20.8%. How they did this isn’t immediately clear, but I have numerically confirmed that they added £4.5m to the H1 18 figure (which was revenue deferred from H1 18 that should recur), and taken off £1.9m from the H1 19 figure (which was revenue pulled forward which will not recur).

Clearly underlying profit growth will also have been significantly lower than the headline, especially considering operational gearing.

Despite these one-off factors, there are several reasons to be optimistic about current and future trading, principally the fact that all their sectors are currently performing very well. International retailers look to be the area with the most immediate potential with 173% revenue growth, a 40% share of total revenue, steady margins and no one-off factors. Even UK discounters are now performing well after a period of stagnation.

Although the outlook statement is very cautious, it confirms that trading is “comfortably in line” with expectations (which is code for “slightly ahead but too early to be sure”).

Looking back, the greatest thing that has gone wrong with this company over the last 2 years has been their profit guidance / broker forecasts. Due to one-off factors it is unclear to me how much broker forecasts will increase after today’s results, but the shares currently look good value.

I hold.

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