Use a sell-off at premium branded cookers, stoves and fridges manufacturer AGA Rangemaster (AGA) as a buying opportunity. Downgraded profit forecasts look conservative, given potential for sales to surprise with a housing markets and consumer tailwind and for EBITDA margins to rise at the operationally-geared group.

The range cooker-to-fridges seller's latest trading statement (19 Nov) triggered profit downgrades. Over the 20 weeks since its 30 June half-year, the Leamington Spa-headquartered company's UK and US divisions have performed well. However CEO William McGrath highlighted a mixed performance in Europe, where consumers are pulling in their horns and foreign exchange is proving a drag. French-based furniture business Grange and Irish stoves specialist Waterford Stanley are both struggling and will hinder overall group growth this year.

Yet Shares believes consensus estimates may now be too gloomy, with sales on an improving trend and UK consumer confidence on the up. AGA Rangemaster has seen a positive response to its new AGA City60 product, a range which has broadened the addressable market towards urban customers.


Meanwhile, the Rangemaster cooker range is increasing market share in the UK, where there is potential for some strong festive sales through department store John Lewis and newly-merged retail powerhouse and potential Christmas winner Dixons Carphone (DC.). Elsewhere within the business, hand-made tiles brand Fired Earth's orders and profits are increasing, while the Marvel refrigeration business is enjoying strong growth too. Furthermore, shipments to partner Vatti, a Chinese gas burner company, should go on display around the turn of the year in a move which should boost sales, given consumers' love for British brands in China.

N+1 Singer sees potential for meaningful margin expansion over the next few years. The broker forecasts £9.1 million of adjusted pre-tax profits for calendar 2014, still a 57% year-on-year increase despite downgrades. For 2015, the broker looks for £12.2 million profits, translating into earnings of 13.9p. These estimates place AGA Rangemaster on a 2015 prospective price to earnings (PE) ratio of 9.4. N+1 Singer suggests a £46.7 million pension deficit could fade or even disappear if gilt yields rise, while the valuation implies significant re-rating scope.

Issue Date: 01 Dec 2014