Shares in UP Global Sourcing (UPGS) fell 8.4% to 60p after the affordable consumer products developer warned it is closely monitoring developments with the coronavirus in China, where the majority of its manufacturing is based.
Sales growth moderated during the six months to 31 January 2020, although this follows the exceptional growth experienced last year.
Clued-up investors were already pricing in the impact of China disruption on the business and UP Global Sourcing reconfirmed full year profit guidance, for now at least, limiting the magnitude of Monday’s share price markdown.
CORONAVIRUS CONCERNS WEIGH
Better known as Ultimate Products, UP Global Sourcing is the owner and developer of affordable homeware brands including laundry, floor care and heating and cooling brand Beldray, audio brand Intempo and cookware and bakeware brand Progress.
The bulk of the group’s manufacturing is based in China, where the extension of the Chinese New Year holiday by nine days to today in its main manufacturing areas is expected to cause production delays.
In today’s statement, management said it will continue to evaluate any short or long term impact on the business and insisted it would ‘take all necessary action to mitigate any disruption’. UP Global Sourcing sought to soothe sentiment by insisting it has ‘extensive experience of managing supply chain disruptions in China, including those caused by previous viral outbreaks’.
SHORT-TERM VISIBILITY REDUCED
UP Global Sourcing’s revenues edged 2.8% higher to £67.7m in the six months to January 2020, an easing of sales momentum from the elevated levels achieved in the last financial year.
Importantly for investor confidence however, management ‘currently’ expects to generate full year profits in line with market expectations. While annual sales guidance has been reduced, adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) margins will be slightly ahead of guidance at 8.1%, noted Equity Development’s Chris Wickham.
So while Shore Capital lowered its year to July 2020 sales growth assumption from 5% to 2.5%, the broker left its pre-tax profit forecast unchanged at £8.77m, versus the £8.5m of pre-tax profit generated last year.
READ MORE ABOUT UP GLOBAL SOURCING HERE
‘We do not expect management’s comment on China manufacturing to be a surprise to the market, noting the material fall in UP’s share price from the weekend of 25th/26th January when coronavirus fears began to ramp-up,’ remarked Shore Capital.
‘Whilst short-term visibility is reduced, UP will not be the only group potentially impacted by any extended period of disruption in China manufacturing, the impact of which is likely to tidal, in our view. In the medium to longer term we remain of the view that UP is well positioned to deliver growth from an increasingly diverse brand, channel, customer and geographic mix.’
SHOWING ITS RESILIENCE
Equity Development’s Wickham argues UP Global Sourcing’s trading has ‘proved more resilient than a number of UK consumer-facing companies in recent months’, with UP Global Sourcing continuing to make progress with its growth strategy.
In recent months, it has renewed its exclusive licence agreement for the Russell Hobbs trademark in the UK and EU until March 2023, one spanning a range of non-electrical kitchen and laundry products (but excludes electrical appliances), the company has also extended its banking facilities and agreed terms on a 10 year lease extension at its Oldham head office Manor Mill, ‘in anticipation of planned investment in the site’.
