A year ago, I wrote with enthusiasm about the merits of UK stock UP Global Sourcing (LSE: UPGS). Back then, I liked the modest valuation, strong balance sheet, and robust-looking forward prospects of the business. The share price then was around 94.5p.
Robust business growth
Today’s full-year results report has propelled the stock more than 10% higher in one day. And it now sits around 195p. But, sadly, I didn’t buy any of the shares for my portfolio! However, I’m still excited about this one. And I’d describe today’s figures as robust.
The company owns, manages, designs, and develops several well-known brands focused on the home. And it sells to more than 300 multichannel retailers in 38 countries. The brands include names such as Beldray, Intempo, Salter, Progress, Kleeneze, and Petra.
And the strategy of focusing on mass-market, “value-led” consumer goods for the home has been working well. For example, in the year to 31 July, revenue climbed by almost 18% compared to the prior year. And underlying earnings per share shot higher by just over 34%.
The directors pushed up the total dividend for the year by nearly 27%. And over the past few years, strong dividend growth has been a feature of the firm’s financial record.
I see the progress of the dividend as an indicator of the strength of the growth proposition. When companies raise dividends by hefty percentages, I reckon it underlines the directors’ satisfaction with the progress of a business. And it also demonstrates their willingness to involve shareholders in the company’s success.
A favourable market
Looking ahead, chief executive Simon Showman reckons the pandemic has created favourable changes in consumer behaviour. For example, he thinks more people will be working and cooking at home. And there’s now a “greater emphasis” on hygiene. But on top of those things, the rising cost of living will likely encourage “a more considered approach to spending.”
Showman reckons such changes will likely endure, creating an attractive ongoing market for the company’s value-driven sales approach. And the directors are “confident” about the long-term prospects of the business. Meanwhile, City analysts have pencilled in a rise in earnings of almost 33% for the current trading year to July 2022. And they expect a hike in the dividend worth around 39%. Of course, all forecasts can change based on future developments and should not be relied on.
Set against those forward-looking expectations, the price-to-earnings multiple is running just under 14. The anticipated dividend yield is a little below 3.6%. The valuation is a little higher than I found it a year ago, but not much. And that’s because of the strong progress with earnings, cash flow, and the dividend.
But one risk is that consumer habits could return to previous patterns as the pandemic fades. If that happens, the surge in growth of the business could prove to be unsustainable. And it’s possible for the company’s valuation to contract if earnings slip in the years ahead, causing me to lose money on my investment. Another risk is the ongoing supply-chain crisis faced by companies engaged in import/export businesses. Nevertheless, I’m inclined to buy some of the shares now to hold as the growth story unfolds in the years ahead.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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