UP Global Sourcing Holdings plc
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.
Watch back - trading update presentation
Andy Gossage, MD of UP Global Sourcing, discusses how the company has successfully grown both the online, supermarket and international segments of the business, how they stayed ahead of the competition during the pandemic, and which sector shifts caused by the pandemic will persist in the 'new normal'.
Brand strength reaps rewards
Better than expected sales revenue and profits, substantial growth in the online business, robust finances and a strong start to FY2021 were salient features of UPGS’s FY2020 year-end trading statement, which was released today. Despite Covid-19 challenges, their brand portfolio and distribution strength show clear, positive momentum: evidenced by resuming dividends and repayment of furlough monies.
Our valuation metrics suggest scope for more upside as revenue and earnings grow with international demonstrating strong potential. As a result, we raise our fair value for the shares from 100p to 150p. At this price key valuation multiples would be only a 1.1x EV/sales ratio and a 17x P/E ratio based on FY2022 forecasts.Download Now Missing Out Get our research first
Brisk growth rate supports higher valuation
The ongoing pandemic only serves to underline business models that are robust, and those that aren’t. This morning’s trading update from UPGS puts them firmly in the winners’ category. As the company approaches the final weeks of FY2020, it not only reports “better than expected progress” against an uncertain business backdrop, but also that revenue and key profit measures for the year should be ahead of current market expectations. Furthermore, online as a portion of total business should record a fourth consecutive increase, providing additional flexibility and strength in the case of a second wave.
Brisk growth, higher online sales and demonstrable management flexibility is overdue more recognition from investors and a higher valuation for the business.
The unscheduled trading update released today includes three important upgrades. Revenue for the year ending 31st July 2020 is now expected to be above £111m, which compares with our most recent £105m forecast that we published in an 8th June 2020 report "Equity Development - Satisfying customer demand". New EBITDA and underlying pre-tax profits expectations also represent upgrades from our most recent forecasts: rising from £7.9m to above £9.6m and from £5.9m to above £7.4m, respectively.
The company’s 0.6x EV sales ratio appears surprisingly low given its ability to grow sales rapidly and profitably on a cash positive basis. Moreover, based on our revised estimates EV/EBITDA and the P/E ratios also look good value. Given the company’s proven track record, we see a 0.8x EV/sales ratio, 9.4x EV/EBITDA and a 14.0x P/E ratio as being more appropriate.
The implied share price at these multiples is 100p.Download Now Missing Out Get our research first
Satisfying customer demand
UPGS released an unscheduled trading statement this morning which confirms better numbers (FY2020 sales revenue, profitability and net debt) than previously envisaged when the company reported its interim results on 30th April.
A commitment to being flexible enough to ensure employee safety while satisfying customer demand is clearly working well. Accordingly, we make positive adjustments to our own forecasts.
UPGS’s shares performed well in the past two months: since end-March they rallied by 51%.
But, based on our revised FY2020 sales estimate and our current projections for end-year net debt, the implied EV/sales ratio is still only 0.6xDownload Now Missing Out Get our research first
UPGS Webinar discussion of their Interim Results
If you missed our live webinar with Andy Gossage, Managing Director of UPGS, you can watch the recording here.
Andy discusses the impact COVID-19 has had on the business, how they have responded, and what opportunities might arise from both an increase in online sales, and a relentless focus on good execution for all their clients.
We begin with a presentation, or you can jump straight to Q&A at 23mins.
Benefits of underlying strengths
UPGS’s interim results included a number of positive outcomes for underlying sales growth, profits and free cash flow in the half. Despite some Covid-19 related setbacks since then, UPGS appears well placed to emerge positively from the current pandemic crisis. In particular, the business benefited from underlying strengths built up over time. Moreover, we welcome the greater importance of UPGS’s online pillar in a post Covid-19 environment.
This year will see a sharp reduction in both sales revenue and profits, clearly. However, a significant portion of that expected decrease appears to have been reflected in the company’s share price decline – a 43% drop in the calendar year to date. Company guidance has been suspended for FY2021 and is currently of the order of £93m of sales revenue for FY2020.
On that marked-down basis the FY2020 EV/sales ratio would be only 0.6x. Listen to, and read, what our analyst Chris Wickham thinks: