UPGS: Online drives first half growth
UPGS’s 2% sales growth benefited from a strong online performance, moving them closer to their 30% target of total revenue for the online channel. Areas of product strength included energy efficient and money saving items, which were cited as being buoyant across all distribution channels (i.e., discount retailers, multiple store retailers, online and supermarkets).The trading backdrop showed signs of improvement in the first half of FY2023. UPGS highlighted a normalisation of global supply chains as well as some easing of cost pressures due to the partial recovery of sterling and the current softness in global shipping pricing, which augurs positively for margins. There are also signs that post-COVID overstocking within its retailer partners has been reduced. More normal patterns of order placing have already recommenced.
UPGS’s strength in online, like supermarkets, reaffirms the quality of their brand portfolio. Brands and products in both channels are effectively put on a “level playing field” against each other. Tangible benefits are now visible from the company’s ongoing transformation from its roots as a sourcing company to now being a brand manager led by Beldray and Salter. We view the appointment of Tracy Carroll in December as Brand Director as being consistent with positive momentum for UPGS’s brand development.
UPGS continues to highlight the positive impact that the company’s automation programme is having on the business. The company expects that its “bottom-up, demand-led’’ approach to automation enables it to concentrate efforts on the tasks that cause the most friction, which should both enhance operating margins and improve customer experience going forward.
Despite recent share price strength, we still believe that the company’s current valuation fails to fairly reflect UPGS’s three salient growth drivers - brands, online & supermarkets distribution and international. With external headwinds easing a second half acceleration is in prospect, plus a robust financial position, the near-term outlook appears positive. We base our 250p fair value / share assumption on an FY2023 EV/sales ratio of 1.5x and 12x EV/EBITDA.
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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