Ultimate Products (ULTP) 131.5p

Loss to date: 15.7%

We flagged Ultimate Products (ULTP) on 18 April 2024 as a compelling way to play the UK consumer recovery on the basis the market was undervaluing the group’s brand strength, resilient business model and multiple growth opportunities.

Our bull case for the homeware products brand manager behind the likes of Salter and Beldray also hinged on hopes of revenue growth resumption as customer overstocking issues eased, with Ultimate Products’ attractive dividend and ongoing share buyback supporting our thesis.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Ultimate Products’ shares are down 15.7% from our 156p entry price. They plunged following an unexpected profit warning on 10 May, which revealed that tougher short-term trading trends were now likely to persist into the group’s fourth quarter.

A more recent leg down in the share price likely reflects a negative read-across from DFS Furniture’s (DFS) latest earnings alert on 12 June, in which the sofa seller bemoaned delivery delays and higher freight costs caused by ongoing Red Sea disruption.

WHAT SHOULD INVESTORS DO NOW?

Patient investors should hold their nerve and stick with Ultimate Products, since longer-term trends are more positive. The Oldham-based firm’s order visibility from larger customers is growing as the overstocking issues brought about by the pandemic subside, and Ultimate Products is well-placed to profit from an uptick in consumer confidence amid a return to real wage growth with inflation coming down and interest rate cuts on the horizon.

A planned sales-boosting Beldray brand refresh, showcased at a capital markets event on 11 June, offers a potential upgrade catalyst looking forwards. ‘Despite some sales and profit disruption so far in full year 2024, we continue to expect above-trend organic growth in full year 2025,’ says Equity Development, whose forecasts point to a 5% drop in revenue to £157.4 million for the year to 31 July 2024, ahead of a strong rebound to £172 million in full-year 2025. 

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