- Shrinking pre-tax margin
- The income has increased
Victorian Plumbing (VIC) more than doubled its pre-tax income for the six months ended March 31. That sounds impressive, but there’s a caveat. The £2.9m increase is not insignificant but needs to be seen in context, particularly given the paltry pre-tax margin of 3.81 per cent.
To some extent, the bathroom retailer’s tight margins are to be expected. The company doesn’t have a public listing until 2021, so it’s in growth mode, which means costs are rising. As expansion continues, investors would expect that margin to increase. So far, however, the opposite has happened. The pre-tax margin has shrunk from 11.4 percent in fiscal 2020 results to 4.38 percent in last year’s preliminary figures. The most recent results continue this trend.
The company attributes part of this to inflation. It said staff costs were up 18 percent, which was “slightly higher than expected due to ongoing inflationary pressures and our commitment to attracting and retaining talent.” Meanwhile, it said the 61 percent increase in real estate costs was due to “warehouse capacity becoming more expensive in the short term to support the company’s growth.”
To its credit, the company remains net cash and has zero bank debt, which is a huge advantage at a time of relatively high interest rates. Still, the company’s growth rate and declining margin at a price of 20x earnings doesn’t justify a rating upgrade just yet. We stick to our neutral position. Hold.
IC Last View: Hold, 70.4p, December 6, 2022
|VICTORIAN PLUMBING (VIC)|
|ORDER PRICE:||81.5 p||MARKET VALUE:||£265m|
|TOUCH:||79.1-84.9p||12-MONTH HIGH:||96.9p||LOW: 33.5p|
|DIVIDEND YIELD:||4.00%||PE RATIO:||20|
|NET ASSET VALUE:||12.7p||NET CASH:||£36.4m|
|Half year to March 31st||Revenue (£m)||Profit Before Tax (£m)||Earnings per share (p)||Dividend per share (p)|
|Ex Div:||08 June|