Shares in British lifestyle brand Joules (JOUL:AIM) jumped 9.4% to 175p on Tuesday on the acquisition of Garden Trading, a rapidly-growing home and garden products retailer, for up to £12.5 million in cash and shares.

Investors applauded the deal, which grows the customer base and boosts Joules’ position in the important and fast-growing home, garden and outdoor category, though seasoned retail analyst Nick Bubb believes the deal looks a bit pricey.

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Garden Trading has in fact been a leading seller on the ‘Friends of Joules’ digital marketplace since AIM-listed Joules launched the marketplace in 2019.

The acquired company is an online purveyor of home and garden products ‘inspired by the British countryside and lifestyle trends’, designing its own range of distinctive home, garden and outdoor products that it sells through its own digital platform direct to consumers and to more than 1,000 UK stockists.

EARNINGS ENHANCING DEAL

For the year to November 2020, Garden Trading generated a 40% surge in sales to £16.8 million, from which it delivered a profit before tax of £2 million, and the acquisition is expected to enhance Joules’ earnings in the year to May 2022.

Nick Bubb, Langton Capital’s seasoned retail sector watcher, believes that based on annual sales of less than £17 million, ‘the upfront cost of £9 million (in cash and shares), rising to a possible £12.5 million dependent on this year’s results, seems a tad high’.

Nevertheless, Joules’ chief executive Nick Jones insists Garden Trading is ‘a fast-growing and highly complementary brand to Joules in the attractive home, garden & outdoor category.

‘The acquisition will help to increase the Joules customer base, broaden our product offering and strengthen our digital platform, which are three of the group’s key strategic growth pillars.’

During the six months ended 29 November 2020, Joules’ accelerating online sales helped the retailer to deliver pre-tax profits ahead of market expectations, though group sales were down 15.3% due to the enforced closure of its brick and mortar stores for 10 of the period’s 26 weeks.

Following recent first half results (28 Jan), Liberum Capital reiterated its ‘buy’ rating on Joules, arguing that ‘the investments the group has made into its supply chain and digital transformation set the base for an enhanced strategy over the next few years.

‘Joules is well on its way in its digital journey and this could deliver an acceleration of opportunities and growth, through its own platform, as well as its Friends of Joules marketplace and further wholesale and license partnerships.’

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Issue Date: 09 Feb 2021