Victoria — Strategy continues to deliver strong growth

Victoria — Strategy continues to deliver strong growth

Victoria’s management continues to drive revenue and margin growth through a combination of acquisition, closer integration of operations and organic growth. Having completed four acquisitions during FY17, the group now intends to strengthen its presence in mainland Europe and is embarking on a major restructuring of the UK manufacturing and logistics operations. The shares trade on prospective multiples that reflect the anticipated rate of earnings growth.

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Victoria

Strategy continues to deliver strong growth

Consumer discretionary

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27 July 2017

Price

510p

Market cap

£464m

Share price graph

Share details

Code

VCP

Listing

AIM

Shares in issue

91.0m

Business description

Victoria is a manufacturer, supplier and distributor of design-led carpets and flooring for the premium-end and mid-markets. It has operations in the UK, Australia and continental Europe.

Bull

Proven track record of identifying and integrating acquisitions.

Acquisition strategy brings economies of scale in purchasing, improving margins.

In-house logistics operation helps attract retailers and supports margins.

Bear

Flooring is a discretionary item that is highly sensitive to a downturn in consumer sentiment.

Markets served are low growth.

113% gearing end FY17 (but net debt/EBITDA 1.6x).

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Roger Johnston

+44 (0)20 3077 5722

Victoria’s management continues to drive revenue and margin growth through a combination of acquisition, closer integration of operations and organic growth. Having completed four acquisitions during FY17, the group now intends to strengthen its presence in mainland Europe and is embarking on a major restructuring of the UK manufacturing and logistics operations. The shares trade on prospective multiples that reflect the anticipated rate of earnings growth.

Delivering on management goals

FY17 revenues rose by 29% y-o-y to £330.4m. While this was primarily driven by acquisitions, l-f-l growth in constant currency was 4.6%, which management estimates was ahead of the market as a whole. Underlying EBITDA increased by 41% (10.6% l-f-l) to £45.7m, giving 13.8% EBITDA margin, close to its long-term target of 14% as achieved by major US manufacturers. L-f-l margin improvement was driven by operational improvements including some logistics savings. Acquisitions included two underlay manufacturers, one in the UK, one in Australia, complementing the underlay offer from Interfloor, and two smaller businesses in the Netherlands making artificial turf for domestic and commercial deployments, thus realising management’s goal of establishing a presence in mainland Europe.

More growth to come

Management intends to continue with its acquisition strategy to build the group up to around $1bn revenues in the medium term. Management notes that it could add up to £30m EBITDA (c 60% growth) without raising equity or requiring new debt facilities. Further acquisitions are likely to be in mainland Europe. The appointment of CEO Philippe Hamers in March 2017 brings an industry veteran to drive organic growth while generating margin improvement from existing operations. The next project designed to enhance margins is to transfer manufacturing operations from Kidderminster to the group’s other two UK carpet production facilities, then create a distribution centre serving all the UK businesses at the vacated Kidderminster site.

Valuation: Growth trajectory justifies premium

The share price has doubled over the last year, reflecting growing investor awareness of management’s ability to deliver sustained revenue and earnings growth. The shares trade on prospective multiples that are in line with the mean of our sample of peers in the consumer discretionary sector. Given the track record of earnings-enhancing acquisitions, a premium to the mean appears justified.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

255.2

18.2*

16.9*

0.0

30.2

N/A

03/17

330.4

29.4*

25.3*

0.0

20.2

N/A

03/18e

392.5

37.6

30.8

0.0

16.6

N/A

03/19e

401.9

41.2

33.7

0.0

15.1

N/A

Source: Bloomberg, brokers’ estimates. Note: *Adjusted for exceptional items and amortisation of acquired intangibles.

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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