Victorian Plumbing’s valuation goes down the pan

To say investors were unimpressed with Victorian Plumbing’s (VIC) maiden results as a listed company would be an understatement.

Shares in the Skelmersdale-based online bathroom retailer fell more than 40 per cent after it reported a 17 per cent drop in pre-tax profit and said demand in the first two months of this year had been largely flat, with customers who had been spending big on their homes during lockdowns finding other things to do with their money once restrictions eased.

The company’s operating profit margin dropped 4 percentage points to 7 per cent as it increased working capital to hold more stock on the back of supply chain disruptions. A wafer thin balance sheet, including just £9.7m in non-current assets and a seven-to-one payables-to-receivables ratio, may have compounded shareholder concern.

At a pre-tax level, profit was lowered by a £9.4m exceptional charge relating to its initial public offering in May, which at the time was the biggest to take place on the Alternative Investment Market, allowing founder Mark Radcliffe to sell £212m of his shares. The listing also resulted in £7.7m of share-based incentive payments to the company’s chairman and key managers.

The sell-off proves markets can be an unforgiving place for companies that do not live up to expectations, especially when they are considered to be growth stocks. Victorian Plumbing was valued at more than £1bn after its shares jumped by a fifth on its first day of trading six months ago but is now worth less than £300m.

Investors may have been spooked by a plan to ramp up marketing spend to achieve growth, but with the shares trading on seven times forecast cash profits its valuation as an online retailer with a recognisable brand looks cheap. Buy.

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