Debt reduction confirms financial strength
UPGS announced a significantly better-than-expected improvement in its debt position today. Net FY23 year-end bank borrowings are expected be in the region of £15m compared with current market expectations of closer to £21m. The financial benefits of lower net debt in the current climate of rising interest rates are clear.UPGS’s cash generation capabilities not only underpin its generous dividend policy (50% of net profits) but also enhance strategic flexibility. The company is not only able to weigh up the relative benefits of increased pay-outs to shareholders (e.g. a higher dividend pay-out ratio or share buybacks) but also to take advantage of potential acquisition targets on offer.
Today’s announcement reinforces confidence in both our own and consensus FY2023 forecasts being achieved. Our 29 March 2023 report commented that a £163m full year revenue figure would require double-digit growth in the second half. Given that UPGS expects its end-year FY2023 net debt:EBITDA to be 0.7x (vs. 1.3x a year earlier), we infer that the company itself shares our confidence. Second half sales growth clearly accelerated sharply.
A combination of strong sales growth and associated financial strength is central to the investment case for UPGS’s shares as the company strives to deliver affordable “feel good” branded products for every home. We reiterate our fair value of 250p; this valuation implies 1.4x EV/sales and 11.7x EV/EBITDA using an improved £15m end-FY2023 net debt estimate.
Up Global Sourcing Holdings is a supplier of household products to global markets. Co. is the owner, manager, designer and developer of a range of consumer goods brands, focused on the home. Co. sources, imports and sells products across a range of categories including small domestic appliances, audio, laundry, housewares, heating and cooling and luggage.
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