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Founded in 1895, Kidderminster based Victoria Plc (VCP.L) engages in the design, manufacture, export, and distribution of carpets and carpet yarns. It offers tufted carpets and Wilton woven products for residential and commercial markets. The company also supplies woven Wilton broadloom carpets and carpet tiles for the corporate / commercial sector, as well as Axminster carpets for hotels, casinos, and cruise liners. In addition, it is involved in importing and distributing wool and natural floor coverings. VCP operates in the UK, Australia, Ireland, and Canada.

On Nov 22 2016, VCP reported interim results. Group revenues grew by 45% from £105.6m to £153.4m, while underlying profit before tax substantially increased from £6.4m to £12.3m. The group said the acquisition of Ezi Floor on 30 Sept 2016 for an initial cash consideration of £6.5m and deferred consideration of £6.5m, plus contingent cash consideration of up to a further £6.5m was wholly dependent on improved EBITDA over the next four years. On Dec 14, VCP agreed to acquire the business and assets of Dunlop Flooring, the Australian underlay and hard wood flooring manufacturer and distributor, for a cash consideration of A$34m. On Feb 13 2017, VCP announces the acquisition of Avalon BV and GrassInc. BV, the Netherlands-based designers, producers, and distributers of artificial grass for a total initial cash consideration of €11.2m and deferred consideration of €5.1m to be funded from cash and the Group’s existing bank facilities. Additional contingent cash consideration is payable dependent on certain financial targets being met over the next four years. At the interim results stage Exec Chairman Geoff Wilding, said: “With no shortage of acquisition opportunities in the UK and Europe, the Board is confident it can continue to grow Victoria and create more wealth for shareholders.” Full year results are due in April.

The rate of earnings growth and general potential at VCP was picked up by VectorVest in Sept 2016. The GRT (Earnings Growth Rate), which reflects a company’s one to three year forecasted earnings growth rate in percent per year, flagged a rate of 32% for VCP, which VectorVest considers to be excellent. Although the RT (Relative Safety) metric only rates VCP as fair, the RV (Relative Value) metrics marks out VCP at 1.52, which is excellent on a scale of 0.00 to 2.00. RV is an indicator of long-term price appreciation potential and is far superior to a simple comparison of Price and Value because it is computed from an analysis of projected price appreciation three years out, AAA Corporate Bond Rates, and risk. Finally Value, the measure of a stock’s current worth, rates VCP at with a current Value of 689p, which means at the current 447.50p per share, the stock is undervalued.

The VCP chart is shown above with the green line study (the VectorVest valuation) above the price showing that the share is much undervalued by the market. Earnings per share (EPS) is shown via the blue line study in the window below the price. This shows EPS rising strongly over the two year period of the chart.

The share has charted a double bottom recently which in its self is positive. The lows of this double bottom are significantly higher than the last swing highs made in January 2017. This phenomenia where the market refuses to fall back to the last swing high was first noted by Charles Dow, some 120 years ago and named by Dow as a marker of a strong trend. Technically this indicates that VCP.L is heading much higher.

Summary: As stated in the interim results last year VCP is clearly making the most of the raft of acquisition opportunities to expand its offering. Given the rate of revenue and profits growth, there is every reason to expect a bumper full year results statement in the coming weeks, and backed by a strong technical picture. The probabilities favour a continuation of this strong trend.

Dr David Paul

April 4 2017

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