Ultimate Products (ULTP) 156p

Market cap: £142.9 million

Strong brands, a resilient business model and multiple growth opportunities ahead are among the investment attractions the market is missing at Ultimate Products (ULTP). This company is the owner of homeware brands including Salter and Beldray. The Oldham-headquartered firm is well placed to profit with UK and international retailers starting to increase orders as consumer headwinds ease. The £142.9 million cap’s robust free cash flow has allowed for a marked reduction in debt and paved the way for an earnings-enhancing share buyback, for which the board is seeking approval.

The company is seeking to reduce its exposure to suppliers in China, a bear point that partly explains its low valuation, and Shares believes a big move higher is possible as margins benefit from falling freight rates and Ultimate Products generates robust sales growth in the years ahead by attacking a sizeable opportunity in Europe.

DIVERSE AND RESILIENT

For the uninitiated, Ultimate Products owns, manages, designs and develops a range of value-focused consumer goods brands including Salter, the UK’s oldest housewares brand established in 1760, and Beldray, the laundry, floor care, heating and cooling brand founded in 1872.

Guided by straight-talking CEO Andrew Gossage, the group is an expert in bringing professional, sought-after products to a mass market with strong demand for its high-quality, affordable wares, evidenced by the fact nearly 80% of UK households own at least one of its products. In recent years, Ultimate Products has pivoted from a licence holder to a brand owner, providing the small cap company with a resilient core from which to expand and grow.

With a sourcing office and showroom in China and a further showroom in Paris, the company’s product range spans five major categories – Small Domestic Appliances; Housewares & Cookshop; Laundry & Cleaning; Floorcare and Scales. Besides Beldray and Salter, the two most important brands for the group, key owned brands also include Progress, Kleeneze, Petra and Intempo, while the firm markets non-electrical Russell Hobbs products under licence and has scope to add additional brands through acquisitions in future.

The self-styled ‘Home of Brands’ sells its products to a reassuringly broad range of national and international supermarkets, discount retailers and online platforms ranging from Tesco (TSCO) and Action to Amazon (AMZN:NASDAQ) and B&M European Value Retail (BME), as well as direct-to-consumer through the Salter.com and Beldray.com websites.

EMERGING GREEN SHOOTS

Results (9 April) for the six months ended 31 January 2024 showed sales down 4% to £84.2 million as Ultimate Products saw lower supermarket ordering due to overstocking issues and lapped tough comparatives boosted by a surge in demand for energy efficient air fryers in the run-up to Christmas 2022. A subdued consumer backdrop and disruption to sea freight in the Red Sea also constrained top line progress, but market share gains from Beldray and Kleeneze arrested the overall pace of the decline. With a helping hand from falling debt, which reduced finance expenses, Ultimate Products still managed to generate a 2% uplift in pre-tax profit to £9.5 million.

‘Macro conditions remain challenging, but our strategy of providing beautiful products at mass-market prices to UK and European households is continuing to stand us in good stead,’ said Gossage. Encouragingly, he added that his charge is now seeing ‘the gradual resumption of normal ordering patterns from our customers after the overstocking issues that were brought about by the pandemic, and we have a range of initiatives underway to improve operational efficiencies and deepen our customer relationships’.

Analysts believe revenue growth is likely to resume in the second half of 2024 and continue into full year 2025, with green shoots emerging as customer overstocking issues ease and several customers now placing orders for the first time in 18 to 24 months.

First half cash generation was strong, with the net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) leverage ratio falling to a comfortable 0.4 times, well below management’s newly-set target of one times. Given the improving balance sheet and the grudging valuation ascribed to its equity, Ultimate Products has decided to launch a buyback of up to 10% of its share capital which should limit the downside from here.

SCOPE FOR UPSIDE

For the current year to July 2024, Canaccord Genuity forecasts a rise in adjusted pre-tax profits to £18.6 million, rising to £20.5 million and £22.5 million for full years 2025 and 2026 respectively.

Based on the broker’s current year 15.4p earnings per share forecast and an estimated 7.7p dividend, the shares look a bargain on a prospective price to earnings ratio of 10.1 with a 4.9% dividend yield, building to a bumper 5.6% based on next year’s dividend forecast. 

‹ Previous2024-04-18Next ›