Risk-tolerant investors seeking a compelling recovery play with tasty re-rating potential should consider ProCook (PROC). This direct-to-consumer specialist kitchenware brand is carving out market share gains under management’s refreshed strategy to serve up profitable growth.
After a tough few years post its 2021 IPO (initial public offering), when the cost-of-living crisis led consumers to rein in discretionary spend and sales growth came off the boil, the outlook for ProCook is improving.
The £32.7 million cap has delivered five consecutive quarters of retail like-for-like growth, is back on the front foot in terms of store expansion and looks set fair for the peak Black Friday and Christmas selling season.
So long as ProCook delivers the goods over its seasonally important second half, earnings upgrades and a re-rating should ensue, although investors should note this micro cap stock’s bid-offer spread could nibble into near- term returns.
WHAT YA GOT COOKING?
Founded over 25 years ago as a family business selling cookware sets by direct mail, present-day ProCook designs and retails a quality range of directly sourced and own-brand kitchenware.
Its value-for-money offering spans everything from knives, pots, pans and chopping boards to bowls, tongs, tenderisers and even small electricals such as slow cookers and ice cream makers.
Awareness of the brand, which sells directly through its own website and through 61 retail stores located across the UK, remains low and there is a sizeable opportunity for ProCook in a steadily growing UK kitchenware market valued at roughly £4 billion.
Under new chief executive Lee Tappenden, appointed in September 2023 having spent over a quarter of a century with Walmart (WMT:NYSE) and Asda, and chief finance officer Dan Walden, ProCook is accelerating profitable growth to deliver the group’s medium-term objectives of 100 UK retail stores, £100 million of revenue and a 10% operating margin.
The Gloucester-headquartered group’s second-quarter trading update (16 October) showed total revenue grew 8.8% year-on-year to £17 million in the 16 weeks to 13 October amid market outperformance by ProCook, with like-for-like sales growing for the fifth consecutive quarter as initiatives around product and value gained further traction.
Ecommerce revenue increased by 12.2% to £5.9 million, a significantly improved performance year-over-year, and the brand has also relaunched on the Amazon UK marketplace after a brief hiatus.
Positive progress is being made to streamline operations to improve service levels and product availability, while net debt at the end of the first half of £4.2 million reflected an increased inventory position, prudently secured by Tappenden and the team in advance given the significant disruption to global freight markets.
Another reason for optimism was the performance of new stores, which are very different to the ProCooks of old, being located in high-profile and high-footfall shopping centres which, along with the evolving use of social media, should help raise awareness of the brand.
In line with management’s plan to open 10 new stores in full year 2025, ProCook pulled up the shutters on four new stores in the first half of the year and is legally committed to open a further six in the second half, the bulk of which should be open in time for Christmas.
TASTY UPSIDE
For the year to March 2025, Canaccord Genuity forecasts an uptick in adjusted pre-tax profit from £1 million to £2.5 million, ahead of £3.8 million in 2026, with EPS (earnings per share) building from 1.6p this year to 2.4p next year.
Those estimates place ProCook on an undemanding prospective PE (price to earnings) ratio of 12.1 times, which drops to single digits on the broker’s 3.3p EPS estimate for full year 2027, during which ProCook may well pay a maiden dividend.
Canaccord Genuity argues the current valuation ‘does not reflect the growth opportunities from further store expansion and like-for-like initiatives’.
Peel Hunt believes that with ProCook in ‘such good shape ahead of peak’ the numbers can ‘start to move north towards the £100 million sales, 10% operating margin goal in time. Any hint of that happening should see a material re-rating here: the shares are too cheap in our view.’
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
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