Deal-hungry floor coverings manufacturer Victoria (VCP:AIM) weaves a 7.14% share price gain to £15 as a positive full-year trading update stokes yet another round of earnings upgrades. Charismatic chairman Geoff Wilding (pictured below) says pre-tax profits for the year ending 2 April will come in 'materially ahead' of market expectations and the carpets king also reports progress on cash and debt.
In a short-but-sweet statement, the Kidderminster-headquartered carpets supplier, whose eponymous brand boasts The Queen's Royal Warrant, guides towards a full-year profits beat. The business is benefiting from improving macro-economic fundamentals in the UK and Australia.
Furthermore, Wilding says recent acquisitions Quest and Interfloor have now been fully integrated, with associated synergies from better buying terms obtained from suppliers and greater logistics efficiencies enhancing gross profit margins.
As Shares outlined in our January Griller interview with Wilding, the New Zealander who has turned the business around in dramatic fashion since wrestling control in 2012, Victoria is pursuing a value-creating strategy of making acquisitions in the fragmented UK and Australian carpet industries, five businesses acquired and successfully integrated over the last three years.
Cantor Fitzgerald Europe's Freddie George raises his price target from £16.50 to £17.50 and his 2016 pre-tax profit forecast for the sixth time over the last year, by 11% to £16.8 million. For 2017, George's PBT estimate rises 13% to £25 million, an upgrade struck before taking into account the potential acquisition of Lano Carpets, a deal that would provide Victoria with 'an excellent entry to European markets'.
The acquisition of Lano, a European carpets maker whose takeover would be classified as a substantial transaction under the AIM rules, would be funded out of the company's existing facilities. Wilding, who has a large equity stake in Victoria and thus refuses to overpay for deals, confirms talks are ongoing 'and a further announcement will be made in due course, as appropriate'.
Today's update also includes welcome news on the balance sheet, Victoria's continued focus on improving cash generation driving 'a material reduction in group net debt and the net debt to EBITDA ratio' since the interims. Cantor's George now forecasts year-end net debt of £60 million, falling significantly to £44 million by end-March 2017.
The analyst comments: 'The company, in our view, is capable of growing earnings per share by between 15% and 20% per annum over the next three years. It will continue to seek earnings enhancing acquisitions, which we believe have already been identified, start to benefit from synergies with the objective of improving EBITDA margins from 10% to 12% and use scale to increase sales not only to the dominant independent sector but also to the multiples and the trade. With the macro-economic environment improving both in the UK and Australasia, we continue to believe our earnings forecasts are conservative.'
