7:59 cut – UPGS

Ultimate Products (UPGS) – Full-year results

[Update: I have now published a more considered piece]

UPGS report revenue inline with post year-end guidance and EPS slightly ahead. The company has stumbled in the past but a more diversified customer base should reduce the risks of this happening again. The describe the 2020 order book as being “moderately ahead”, which I would interpret as more than the previously guided 5% ahead but it would be understandable if any upgrade was put on hold until the trading environment was more certain.

As a top 5 holding I have created detailed model of their business. From this I note:

• Gross margin was slightly disappointing, continuing the recent trend lower, with H2 at a new record low of 21.8% (versus 22.3% in 2018, 22.4% in 2017) and the full year at 22.1% (versus 22.4% in 2018 and 22.3% in 2017). This is put down to exchange rate factors.
• This was balanced by cash admin expenses falling back as a percentage of revenues, resulting in an increased operating margin of 7.2%, back to 2017 levels.
• EPS was boosted by 0.2p by share buybacks into the employee benefit trust.
• A continuation of strong growth in the Europe ex UK / Germany, whereas I had expected one-off factors in H1 to lead to a slowdown in H2.
• UK inline with recent trends.
• Elsewhere experienced a sharp slowdown / high H1 seasonality / H2 reversal. Germany was disappointing after the strong growth in H1 and Rest of World did not live up to its H1 promise, instead continuing the decline seen in recent years.
• Beldray, a fully owned brand, saw continuing growth in H2 whereas Salter shrunk in excess of the seasonal factors seen in 2018.
• “Progress” went backwards with supermarkets preferring other brands.

I am still forming an opinion on whether these results are overall better or worse than I expected.