Victorian Plumbing – sales flat, gross margin up

Victorian Plumbing (VIC) delivered flat half-year revenues on a like-for-like basis and a 2 per cent rise in completed orders through the period. That’s a reasonable enough outcome given where we are in the interest rate cycle, but the market seemed less than impressed judging by the share price performance in early trading.

Earlier this month, the company bought a rival online bathroom retailer, Victoria Plum, in a deal worth £22.5mn. The rationale for the deal centred on the “significant strategic value…of the Victoria Plum brand and its associated intellectual property”. The purchase price represents c.0.5 times Victoria Plum’s estimated annual revenue and the new subsidiary is expected to be earnings-accretive from FY 2025. The deal will boost market share gains, but it will have a slightly detrimental effect on group profitability until an associated cost reduction programme is finalised.

The gross margin was up by four percentage points to 50 per cent. This reflects a slightly higher proportion of own brand products within the sales mix, along with lower shipping costs. Trade revenues increased by two percentage points to 22 per cent of the group total, which is modest compared with the proportional increases across the home improvement sector as a whole. Customers have been reticent to purchase what Victorian describes as “big ticket discretionary items”, leading to a reduction in average order value. Victorian notes that there are “early signs of levelling off” on this score.

With no debt on its books and free cash flow up by a third, Victorian exited the period in good shape, although the cash conversion rate leaves room for improvement – receivables crept up through the period. The forward rating of 19 times consensus earnings suggests the market is up to speed. Hold.

Last IC View: Hold, 81.5p, 24 May 2023