Victoria Share Discussion Threads

[rachael777] 09/5/2018 08:25

this stock was a momentum buyers wet dream but anything above £8 is too rich for me - expect to see it range trade for months from now on until news

[40harry] 08/5/2018 16:56

You would have to ask them....at a guess they think the company is undervalued. Does not mean that they are correct however, indeed, professional investors only get it right c.50% of the time...If you think that the route towards successful investing is to justify your own actions by seeking out someone else who is doing the same thing as you, good luck

[nivison] 08/5/2018 11:59

Why then do you think Invesco keep increasing their holding ?

[40harry] 07/5/2018 22:55

New profit should read £16, not £18

[40harry] 07/5/2018 22:50

1) Newsflash - capital = equity + plus long term debt. If you think that they have only raised capital twice, i would encourage you to look at their cashflow statement where you can look out for both (not just equity). Oops.

2) Wrong again (you're really not off to a great start). I'll explain and help you out with an example. Let's take 2 identical companies (VCP)and company B - neither pay tax - this simplifies things. Both have revenue of £100, PAT of £10 and 100 shares in issue of £1 each i.e equity = 100. VCP raises £100 of debt and buys company B. The cost of debt is 2%. In the first year of acquisition, VCP's EBIT drops to £8, while the acquired company generates £10 again. The investor looking at EPS would say - new group profit is £18 (£8 + £10 - £2 (interest)) that's an 80% increase, that's great. ROCE meanwhile says what's going on, as group ROCE goes from 10% (10/100) to 9% (18/200). The EPS investor misses this point and buys more shares overlooking the worsening performance of the original business.

You also miss the point when you say "The reason EPS has increased over the last 5 years is that the earnings have increased much faster than the capital raised". The major EPS driver has actually been management acquiring businesses cheaply (at a significant discount to their own valuation). When this happens, acquisitions are always going to be earnings accretive.

When this happens, you need to look deeper (beyond the superficial 'EPS growth') and remember that if a company buys some revenue and profit generating assets (at a fair price) the value of the acquiring company should not change, as cash has been exchanged for an asset (and profit). The fact that earnings goes up afterwards, just says either debt is cheap or the company has been acquired (relatively) cheaply. EPS growth does not mean a great company, as all it has does has acquired other businesses at fair prices. If this is indeed the case, VCP (to me) is quite obviously overvalued.

But what if they were fair prices for those owners, but under new management or as a larger group these businesses have prospects that were unattainable as standalone businesses. This, in my mind would justify the valuation gap we're seeing between VCP and the businesses that it's bought.

I therefore put it to you - can you provide evidence of how VCP has either: 1) consistanty doubled the operating profit of the companies it has acquired (this would need to be the case as 17x (pro-forma P/E) is >2x acquired businesses of 7x P/E); or
2) Please identify and quantify the uplift in the group's growth rate following the acqisition i.e. by comparing growth rate of 2 standalone businesses with one VCP group.

4) No i'm not....

5) please quantify margin expansion and growth rate and how it compares to the market (words are not use to me). Margin expansion also needs to be split out from the acquired businesses - as they could have just acquired higher margin businesses, thereby lifting up group margins

7) the point is quite obvious - i don't see how the company is going to repay its debt, especially given 1) debt is 6x FCF and 2) mgmt are heavily to incentivised to acquire new business i.e. expect more debt

[wendydc] 05/5/2018 19:28

1boston, I think 40Harry is to be commended. Yes, he has made numerous errors (you have pointed some out) and his conclusions are therefore wrong, but at least he has made an effort at proper analysis rather than the superficial comments one sees so often in share chatrooms.

[1boston] 05/5/2018 17:45

Not sure I agree with 40harry’s bearish comments above.

1.The company has raised capital twice, not “constantly221;. Once in September 2015, and again in November 2017. A total of £218m, while the market capitalisation has gone from £14m to nearly £1 billion.

2. EPS takes into account capital raising. The clue is in the name: “Earnings PER Share”. The analogy of doubling ones interest by doubling the amount on deposit is therefore erroneous. The reason EPS has increased over the last 5 years is that the earnings have increased much faster than the capital raised.

3. The analysis has failed to take into account the whole-year earnings impact of acquisitions completed part-way through the previous year. Assuming these acquisitions only continue to trade as they have in the past (and history shows they tend to perform better under Victoria’s ownership and management), the pro-forma PE is more like 17x

4. The benchmarking analysis is incorrect as it is comparing the ratio of profit before tax (for Victoria’s “competitors”) with profit after tax for Victoria.

5. Through a combination of above market revenue growth and margin expansion, Victoria’s organic earnings are growing much faster than competitors. That is why the market values it on the 40% premium

6. Ebitda margins have gone from 3% five years ago to 14% in FY2017. That is a very strong indicator of a well run company.

7. Really don’t follow the logic behind the insolvency point at all.

And, Bouleversee, I cannot see much risk of the stock “plummeting221; in the event the IHT shelter being removed. Unlike five years ago, the shares are now overwhelmingly owned by institutional investors and Wilding.

[gabrieloak] 04/5/2018 18:12

40Harry...not a bad analysis on the face of it.

Company is rated as a growth (and consolidation) stock...

Either they grow from here (and consolidate) or they don't.

[bouleversee] 04/5/2018 16:40

Who are you comparing them with? The likes of Carpetright? I doubt if the Royal family buy their carpets from them. Don't forget they now own a lot of foreign companies where there has not been a retail downturn like here but even here the wealthy buy expensive new carpets and it's quite likely they'll go to John Lewis and buy Victoria's. In April they said their revenue and underlying profits were expected to be ahead of consensus market expectations and I have read articles and brokers reports recommending them highly. I agree the p/e ratio does seem high and have wondered if they were overvalued but then I've always thought the same about
Diageo so have never bought, which has been my loss. I owned VCP before the days of Wilding and as a result of the special dividend my shares have cost me nothing, now worth around £60k so I obviously hope they don't come unstuck. I suppose they benefit from having gone on the AIM register because people are looking for a way of avoiding IHT and as there is talk of doing away with that concession in forthcoming tax reforms, I suppose the share price could plummet in that event if people switched to income stocks or ones perceived to be less risky though with all the nasties that jump out of the woodwork these days even in what one would consider safe investments, I'd like to know what is without risk.

All we can do is wait for their results and keep our eyes and ears open and possibly taking some profits which at the moment would mean losing the AIM benefit and probably paying cgt. I wouldn't myself add at today's price but am not in a hurry to sell either. In the context of the total value of my p/f, they are not really overweight though they are now the most valuable holding.

It would be interesting to know what others think. I am no expert.

[40harry] 04/5/2018 13:02

Warning signs:
When a company's strategy is to "create wealth for its shareholders by constantly increasing earnings per share via acquisitions and sustainable organic growth" this is a massive warning sign.....as in my view as EPS says nothing about how well management are performing, particularly when the capital base of the company has been constantly increasing (to fund acquisitions). The equivalent is me saying: i've done a great job earning twice as much interest in my savings account, when all i have done is doubled my deposits.

Valuation cannot be justified by revenue growth
In my view, investors' fixation on EPS growth has driven the shares significantly further ahead of their intrinsic value, such that the company is now being value like a growth stock (high 20's P/E). However, the reality is far different, with LFL (organic) constant currency revenue growth of just 6% in FY17. Let's assume that this is close to the 'market' growth rate for the industry.

Trading on 4x premium to peers, why?
But maybe the carpet industry trades at high multiples? If that was the case, how come Victoria is trading at 4x its competitors (average P/PBT multiple of 7.2x for FY17 acquisitions) when their growth rates are probably similar and actually the acquired business in FY17 actually had a superior ROCE than Victoria (which should deserve a premium valuation). Why would all these business owners sell as such a significant discount to their businesses' intrinsic value? It doesn't make sense....

Valuation gap must come down to cost cutting post acquisition
Given that Victoria is blend of acquired businesses, which together, don't have better growth prospects or ROCE characteristics, I don't think it's unreasonable to say that £1 of profit generated by Victoria should be worth a similar amount to £1 of profit generated by a competitor i.e. the profit multiple should be the same.

If you buy this argument, then the rational investor in Victoria must be indifferent between investing in Victoria at 28x earnings and investing at 7x earnings in a competitor. The rational investor can only say this if Victoria's management can quadruple an acquired business' profit margin, such that £1 can be turned into £4. Does this happen or could this happen? Well, the acquired businesses in FY19 had (on average) a PBT margin of 18%, versus Victoria at 9%. I think that the answer is quite obviously, no.

Wrap up
Earnings growth is an illusion and does not reflect how well management are performing. It is ROCE that it a better reflection and to this end, Victoria earns about a 10% return on capital - about 50% short of what most 'quality' orientated investors would view as a 'good' company.

Where is Victoria heading?
Victoria's valuation cannot be maintained by its very pedestrian rate of growth. As such, expect management to make more and more (in my view, disparate) acquisitions (the cheaper the better(?)). This will build on the company's already significant debt. LT debt is already £125m or 6x FY17's FCF, so don't expect this to be repaid, meaning insolvency is the logical outcome when refinancing isn't an available option. D-day is October-2020, with an option to extended for another year.

[bouleversee] 26/4/2018 17:46

Yes, I saw that. Presumably, it's just for one or more of their funds; wonder which.

[nivison] 26/4/2018 17:24

should read Invesco.

[nivison] 26/4/2018 17:23

Invest increased shareholding again, now up to 16%

[gargleblaster] 23/4/2018 19:05

I have bought in here. It is a breath of fresh air to hear management talking actively about their desire to benefit shareholders - although of course that's what it all should be all about - but usually isn't! I also like the fact the incentive scheme only benefits member/staff if the share price goes up by more than 20% p.a. I would happily settle for 20% p.a., but their implication is that they should obtain this and more. Good to see Invesco steadily accumulating and management having considerable stakes in the business. I agree reubencash - could look cheap in two years time.

[tradejunkie2] 06/4/2018 21:10

P/E of 56 !!!!

[gabrieloak] 05/4/2018 11:30

Berenberg buy target reiterates to 950p

[bouleversee] 04/4/2018 22:51

Many thanks, gabrieloak. Will have a look.

[gabrieloak] 04/4/2018 22:37

As requested B

hxxps://www.thefurnishingreport.com/index.php/news

[gabrieloak] 04/4/2018 21:06

Reading back over the furnishing report news (not logged on for a few months)...I had missed the news on Headlam seeing UK weakness and European flooring imports being strong...

I think the read across from Headlam (along with Carpetright irritating comments on market conditions as a poor retailer) explains the recent weakness in share price...however:


(This morning) Geoff Wilding, Executive Chairman, commented:

"We are now seeing the clear benefits of our strategy to develop a broadly based, resilient flooring business, where operational and manufacturing synergies lower costs, whilst also providing a robust platform for organic and acquisitive growth. This is in no small part due to the excellence of our wider senior management teams who continue to drive the business and create opportunities to grow market share while maintaining margins.

The Board is encouraged by 2018 trading to date. Together with progress on ongoing internal initiatives to deliver synergies and revenue growth, and the very attractive acquisition prospects already identified, the Board is confident it will deliver another year of significant, earnings-accretive growth in the 2018/19 financial year."

Board is encouraged by trading so far in 2018!

What is not to like...?

GO

[gabrieloak] 04/4/2018 14:46

interesting logic AB...thanks

[alphabeta4] 04/4/2018 11:21

FWIW I've kept hold of my 27/3 purchase today. I think there is an acquisition or two imminent. My thinking is:

1. From today's statement: 'Additionally, the Board of Victoria has invested a significant amount of management focus during the past year identifying additional suitable acquisition opportunities. Shareholders should anticipate further acquisition-led growth focused on Europe.' Later they talk about 'very attractive acquisition ops already identified'. This gives a clue IMHO that they are fairly well advanced.
2. Around the last acquisition 15/11 they said they kept back £21m for more acquisitions and there is now circa 5 months extra cash, helped by the Karaben and Ceramiche acquisitions.
3. Four acquisitions were completed last year, from Feb there was a gap of 8 months and then two in quick succession. If there was one within the next month that would be around a 6 month gap.

I expect there is currently c£50m cash to play with, on a pe of 10 this would add c9% to forward earnings, or about 70p on the current share price. GLA

[bouleversee] 04/4/2018 10:14

Very reassuring. About the only bright spot at the moment.

[nivison] 04/4/2018 09:10

Very positive trading update. More acquisitions planned and performing ahead of expectations. About as good as I hoped for. Excellent new website too.

[gabrieloak] 04/4/2018 09:05

B...it’s out...what do you think?