Feeling good about FY2019
After an unquestionably challenging year, UPGS delivered FY2018 preliminary earnings results in line with consensus as underlying EPS was 5.4p. Sales revenue of £88m and £6.5m adjusted EBITDA reconfirmed an earlier announcement. UPGS’s international business continued to gain ground as a portion of sales due to a strong H2. Moreover, FY2019 appears to have started well and we raise our EBITDA estimate from £6.9m to £7.1m, largely due to better than expected sales revenue: the future feels good.Overall, there were few surprises in UPGS’s FY2018 results. Revenue and EBITDA were pre-released in a 10th September trading statement, which reported that FY2019 orders were ahead of last year and that online rose 52% to be 7.9% of sales revenue. Importantly, international regained ground in the second half of FY2018 and comprised 36.9% of sales compared with 19.8% in the first half and 27.4% in the year as a whole. International sales grew 16.4% in the 6 months. German business doubled in FY2018.
UPGS reconfirmed that FY2019 started well and we infer good reason for ongoing optimism. A well-positioned brand portfolio and good growth prospects in both online and international prompt us to raise our FY2019 sales forecast from £95.4m to £97.0m, EBITDA from £6.9m to £7.1m and EPS from 5.5p to 5.6p. Dividend policy is for a 2x cover, while debt headroom and projected cash conversion underpin future dividends.
The longer-term investment case for UPGS remains intact. The company is committed to driving its brands’ revenue growth through its four strategic pillars: discount retailers, raised supermarket penetration, online and international. We retain our future expectations of sustainable 5% organic sales revenue growth.
Based on our revised forecasts for FY2019, UPGS trades on 6.2x EV/EBITDA, a 6.8x P/E ratio and offers a generous 7.4% prospective dividend yield. Investors should probably feel good about the share price potential.
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