Lords Group Trading focuses on a richer product mix

Lords Trading Group (LORD) has been trading on Aim since midway through 2021. A distributor of building, plumbing, heating and DIY products, the company is exposed to fluctuations in construction markets. Despite lingering anxieties over whether successive interest rate hikes will have a cooling effect on industry activity, Lords has delivered pleasing numbers for 2022, sending the shares upward on results day.

Cash profits, excluding exceptional items and share based payments, were 34.4 per cent to the good at £30mn, reflecting a 60-basis point increase in the underlying margin. The general industry disruption brought about by the pandemic, specifically that linked to supply chains, convinced management that the company should increase the proportion of higher-margin products in the sales mix. So, while like-for-like revenue at the Plumbing and Heating division slipped by 9.1 per cent – the indirect result of semiconductor shortages – it still generated increased profit on improved margins.

Lords swung from a net cash position of £6.5mn at the end of 2021 to net debts of £19.4mn at the end of last year. That’s because £26.9mn was allocated towards acquisitions through the year, including the purchase of the freehold of George Lines’ Heathrow site for £6.3mn. Meanwhile, a planned increase in capital investment meant that the free cashflow conversion rate narrowed to 66.9 per cent from 89.1 per cent at the end of 2021.

The shares are valued at nine times consensus earnings, which compares favourably with peers like Travis Perkins (TPK), although a price/earnings-to-growth multiple of 2.4 could indicate that the company’s growth prospects are adequately reflected in the share price. Admittedly, that conclusion is at odds with broker analysts covering this stock, but we remain circumspect despite the impressive trading performance. Hold.

Last IC view: na