Ultimate Products' pricing strategy pays off

Ultimate Products (ULTP) – which changed its name in October from UP Global Sourcing Holdings and has a new ticker – has maintained its defensive position on prices in an attempt to incentivise consumer demand for its heritage brands. The evidence suggests that its strategy of "resetting" prices by introducing hundreds of new products each year is working out. The homeware company posted record annual revenues, along with its highest adjusted cash profit of over £20mn, as online sales shot up by 64 per cent.

On the other hand, excess inventory stemming from the pandemic hit sales to supermarkets and retailers. This was seen in the mixed brand performance. While sales at key brand Salter rose by 39 per cent, laundry and floorcare brand Kleeneze’s sales were up by a fifth, and German kitchen electrical brand Petra brought in over £3mn of revenue after being relaunched, the top line at the company’s other brands went backwards.

Gross margin was aided by lower shipping rates and was up by 80 basis points from last year to 25.7 per cent. Investment in robotics is helping operating margins, with automation saving more than 1,000 employee hours each week.

Elsewhere, leverage fell from 1.3 times to 0.7 times. Cash generated from operating activities rose significantly from £6.8mn to £24.4mn year-on-year, with operating cash conversion improving to 121 per cent. 

The shares trade at an undemanding 7.8-times broker Canaccord Genuity's forward earnings forecast. Ultimate Product's managing director Andrew Gossage told Investors’ Chronicle that expansion in Western Europe is something the company is aiming for in the medium- to long-term and we think this is something to watch. Hold.

Last IC view: Hold, 132p, 29 Mar 2023