7:59 cut – UPGS

UPGS Trading Update

UPGS own, manage, design and develop of a range of value-focused consumer goods brands including owned brands such as Progress (cookware) and licenced brands such as Russell Hobbs. They listed in March 2017 and quickly rose to above 200p, before being hit by various problems that brought them to lows of 30p. They could still be bought for less than 40p at the beginning of this year before the recovery became fully apparent leading to highs over 85p. More recently the share price has been drifting.

Today they issue an unscheduled Trading Update reporting strong trading across all divisions and that results would be above expectations. Strangely though, the top end of their stated revenue range is only 2.5% above current broker forecasts (which have not changed significantly since their last update), and while they say this means profits will be ahead, they do not say “significantly” or mention anything about margins.

So the big question is why did they feel the necessity to issue today’s unscheduled statement? I think the answer is some combination of: a) profits look to be 10% or more ahead (but they cannot be sure yet), b) management think the share price is in danger of drifting further before the next update in September, c) management wish to buy shares and their Nomad has advised to get everything into the open first.

I have been looking beyond FY2019 to FY2020 for some time now. Today’s update reinforces that FY2020 forecasts look far too low barring significant mishaps. The strength over the last two months should carry somewhat over into H1 and bode well for the Christmas peak. Pending a full review of this company I provisionally forecast FY 2020 EPS will be closer to 8.5p than the 7.6p currently forecast, putting the company on a forward PE of 8.5x.

Despite being my second largest holding I will be trying to add further this morning.

15:00 Update

The house broker issued a note around mid-morning which I have now digested. These notes are directly paid for by UPGS and so to a degree can be treated as the company’s own words wrapped in a regulatory fire-blanket. So when the note talks about “recent share price weakness” you can assume it is the company that was worried about the share price drifting, and when they raise both FY2019 and FY2020 EPS forecasts by just shy of 10% (on EBITDA margins up from 7.5% to 7.9%) you can assume that this is the company’s view, but they were too cautious to include in the RNS.

The broker have lifted FY2020 EPS forecasts from 7.6p to 8.3p and have reiterated their conservative bias. This ties in well with my 8.5p forecast and increases the chances of it being beaten.

I have not been able to add at a reasonable price so far today. My disappointment is mitigated by the fact I added below 74p last week and that this is already my second largest holding.

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