Overview
Victoria Plc (LON: VCP) is a Worcestershire, United Kingdom-headquartered leading designer, manufacturer and distributor of innovative flooring products, including carpets, ceramic and porcelain tiles, flooring accessories, artificial grass and LVT (luxury vinyl tile). It is known for supplying its products to the mid-to-high end of its respective markets and selling primarily direct to retailers. The group was originally founded as a carpet manufacturer in 1985 and was admitted to the AIM market of the London Stock Exchange in 2013 and has now become the largest manufacturer of carpet in the UK and the second-largest in Australia as it is diversified geographically and by-product to become a major player in wider flooring arena. Across more than 20 sites, it employs approximately 2,600 people and has operations in the UK, Europe and Australia. The business is overwhelmingly focused on the home improvement market, and more than 3,000 customers in the UK range from independent retailers to distributors and large format chains like John Lewis. The ability to cross-sell bundled products and leveraging the distribution networks, allow it to enjoy commercial synergies and enabling it to transfer the best operating practice between acquired businesses to drive like-for-like margin improvement. Across several different brands, styles and price points, it offers a range of leading quality and complementary flooring products, with sales teams across each brand and product range.

Geoff Wilding is the Executive Chairman of the group, since October 2012. The Chief Executive Officer of the group is Philippe Hamers. The CEO is supported by Michael Scott, who is the Group Finance Director.

Key Statistics



Top Shareholders

 

Recent News

On 23rd January 2020, Victoria Plc announced the pricing of the aggregate principal amount of EUR 170 million in the form of senior secured notes at a fixed rate of 5¼ per cent at a price of 105 per cent due in 2024.

On 22nd January 2020, Victoria Plc announced its intention to offer an aggregate principal amount of EUR 170 million in the form of senior secured notes with a due date in the year 2024. The decision was the result of favourable market conditions and strong operating performance. 

Business Segments

The operations of the group are differentiated in three operating segments, namely Australia, UK & Europe Ceramic Tiles and the UK & Europe Soft Flooring. Australia includes the sale of soft flooring products in the region, UK & Europe Ceramic Tiles includes the sale of Ceramic Tiles and related products in the region, and the sale of soft flooring products in the UK & Europe are covered under the UK & Europe Soft Flooring. In the first half of the financial year 2020, the company’s revenue and the operating profit from UK & Europe Ceramic Tiles and the UK & Europe Soft Flooring businesses have increased, while the revenue and the operating profit from Australia business have declined for the period.The company’s expenses related to depreciation and amortisation has increased from all the reportable segments. In the first half of the financial year 2020, the company’s capital expenditure from UK & Europe Ceramic Tiles business has increased, while the capital expenditure from UK & Europe Soft Flooring business and Australia business has declined for the period.

Financial Highlights – H1 Financial Year 2020 (28^th September 2019, GBP, million)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by organic growth and contribution from the acquisition of Saloni, the company’s revenue surged by 16 per cent to GBP 315.9 millionas against GBP 273.4 million in H1 FY2019.Even as the cost of sales rose considerably to GBP 200.2 million in the H1 FY2020 from GBP 177.9 million in the previous year, gross profit grew to GBP 115.7 million in H1 FY2020 from GBP 95.5 million in H1 FY2019. The company’s underlying EBITDA surged by 29 per cent from GBP 45.4 million in H1 FY2019 to GBP 58.5 million in H1 FY2020, while the underlying EBITDA margin was up by 190 bps to 18.5 per cent for the period. In the first half of the financial year 2020, the company’s underlying operating profit was up by 17 per cent to GBP 39.7 million from GBP 34 million in H1 FY2019.

The company’s reported operating profit surged by 75 per cent from GBP 13.6 million in H1 FY2019 to GBP 23.8 million in H1 FY2020. The company’s underlying PBT (Profit before tax) declined by 2 per cent to GBP 27.5 million in H1 FY2020versus anunderlying PBT (Profit before tax) of GBP 28.2 million in H1 FY2019. The company’s reported PBT (Profit before tax) increased to GBP 5.5 million in H1 FY2020versus a reported PBT (Profit before tax) of GBP 4.6 million in H1 FY2019.

The company’s underlying PAT (Profit after tax) declined to GBP 20.8 million in H1 FY2020versus anunderlying PAT (Profit after tax) of GBP 21.5 million in H1 FY2019. The company’s reported PAT (Profit after tax) increased to GBP 3.9 million in H1 FY2020versus a reported PAT (Profit after tax) of GBP 0.7 million in H1 FY2019.

The company’s adjusted basic earnings per share declined by 7 per cent to 16.59 pence in the first half of the financial year 2020 from adjusted basic earnings per share of 17.91 pence in H1 FY2019. The reported basic earnings per share were up by 436 per cent to 3.11 pence in H1 FY2020 from basic earnings per share of 0.58 pence in the first half of the financial year 2019.

The company’s adjusted diluted earnings per share declined to 16.59 pence in the first half of the financial year 2020 from adjusted diluted earnings per share of 17.88 pence in H1 FY2019. The reported diluted earnings per share increased to 3.11 pence in H1 FY2020 from diluted earnings per share of 0.58 pence in the first half of the financial year 2019.

The company’s underlying FCF (free cash flow) surged by 6 per cent to GBP 23.8 million in H1 FY2020 from underlying FCF (free cash flow) of GBP 23.2 million in H1 FY2019. The net debt for the period stood at GBP 364.3 million versus net debt of GBP 342.7 million in H1 FY2019, while the net debt/ EBITDA was at 3.3x for the first half of the financial year 2020.

 
EBITDA as per Geographic Segments


(Source: Annual Report, Company’s Website)
 
The company’s operations are broadly divided into six geographic segments which include the UK, Spain, France, Australia, Rest of Europe and Others. The company in the financial year 2018 generated the majority of EBITDA from its European operations, particularly from the UK and Spain. The company’s Australian operations generated least EBITDA in the financial year 2018.

Financial Ratios

 

The reported gross margin in H1 FY2020 surged by 1.7 per cent to 36.6 per cent as against gross margin of 34.9 per cent reported in the last year for the same period. The reported EBITDA margin improved for the first half of FY2020 to 18.5 per cent versus the EBITDA margin of 16.6 per cent reported in the last year for the same period. The reported operating margin increased for the H1 FY2020 to 7.5 per cent versus the operating marginof 5.00 per cent reported in last year for the same period. The reported Pretax margin stood at 1.7 per cent for the first half of FY2020 and stood lower than the industry median of 12 per cent. The company reported a net margin of 1.20 per cent for the first half of the financial year 2020 as against a net margin of 0.2 per cent reported in last year for the same period. Return on equity for the first half of the Financial year 2020 stood at 1.2 per cent versus a return on equity of 0.2 per cent in last year for the same period. On the liquidity front, Victoria Plc’s current ratio stood at 1.93x and was lower than the industry median of 3.21, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Victoria Plc’s was 1.55x, which was higher as compared to the industry median of 0.05x, reflecting that the company is more leveraged as compared to its peers. On leverage front, the asset-equity ratio of the Victoria Plc’swas 3.43x and was higher than the last years’ asset-equity ratio of 3.03x.

Share Price Performance


Daily Chart as of  January 28^th, 2020, before the market close (Source: Thomson Reuters)

Victoria Plc shares were trading at GBX 434.77 at the time of writing before the market close (at 12:35 PM GMT) on 28^th January 2020 and were up by 1.11% versus the previous day closing price. Stock's 52 weeks High is GBX 550.00 and Low is GBX 315.00. At the time of writing, the share was trading 20.95 per cent lower than the 52w High and 38.02 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 80,530.80; 30 days – 61,119.73 and 90 days – 115,668.42. The traded volume (average) for 5 days was up by 31.76 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly higher volatility as against the benchmark index based on the company’s beta of 1.31. The outstanding market capitalisation was around £540.16 million.In the last one week and month, the company’s share delivered a positive return of 5.02 per cent and 1.70 per cent, respectively.

Valuation Methodology
Method 1: EV/EBITDA Multiple Approach (NTM)

 

To compare Victoria Plcwithits peers, EV/EBITDAmultiple has been used. The peers are ASOS Plc (NTM EV/EBITDAwas 14.84), MJ Gleeson Plc (NTM EV/EBITDAwas 10.08), DFS Furniture Plc (NTM EV/EBITDAwas 6.88), Abbey Plc (NTM EV/EBITDAwas 4.22) and Colefax Group Plc (NTM EV/EBITDAwas 3.85). The average of EV/EBITDA (NTM) of the company’s peers was 7.97x (approx.)

Method 2: Price to Earnings Approach (NTM) 
 


 To compare Victoria Plcwithits peers, Price/Earnings multiple has been used. The peers are Cairn Homes Plc (NTM Price/Earnings was 14.74), MJ Gleeson Plc (NTM Price/Earnings was 13.41), Vistry Group Plc (NTM Price/Earnings was 10.37), Abbey Plc (NTM Price/Earnings was 9.54) and Springfield Properties Plc (NTM Price/Earnings was 9.25). The Average of Price/Earnings (NTM) of the company’s peers was 11.46x (approx.)

Risk Assessment and Growth Prospects

The company operates in multiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations.Also, the company faces pressure on pricing and margins due to the mature and highly competitive markets where it operates, and material adverse changes in certain raw material prices could affect the profitability of the group. Moreover, economic conditions within the geographic areas within which it operates influences the operating and financial performance of the company and can face uncertainty in the medium-to-long term due to ongoing Brexit. The market in which the company operates will continue to grow and expand in the future, to benefit from this expansion, the company actively looking for acquisitions. With the increase in the number of houses, offices, factories and retail spaces, the demand for the company’s product will increase as well.

Conclusion

The company is relatively insulated from the more cyclical industries like construction, as the business is overwhelmingly focused on the home improvement market. It helps the group to sail away relatively easily in the face of an economic downturn, the risk of which has increased significantly in recent months. Moreover, the business is able to respond quickly to changes in demand as it has low fixed cost base, and manufacturing facilities are well-invested and highly efficient, allowing the group to varying production levels as appropriate, in order to maintain a low level of operational gearing.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £127 million in FY15 to £574.4 million in FY2019. Compounded annual growth rate (CAGR) stood at 45.83 per cent.
 
Based on the decent prospects and supported by valuation as done using the above two methods, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 420.40 (as on 28^th January 2020, before the market close at 8:10 AM GMT) with high single-digit upside potential based on 7.97x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.) and 11.46x NTM P/E multiple (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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