Shares in value-focused consumer brands company UP Global Sourcing (UPGS) are approaching two-year highs, after tripling from the March lows. There should be a lot more gains to come.

The company, better known as Ultimate Products, has navigated the pandemic impressively so far given the initial disruption to its Chinese supply chains. The business is benefiting from what could be sustainable workplace changes, while the increased scale and increasing customer diversification adds quality and stability.

These attributes are not reflected in the valuation of the shares which look too cheap on 10 times next year’s expected earnings.

Its latest update (24 August) saw more evidence of strong business momentum with the firm repaying Government furlough scheme funds due to stronger than expected cash generation during the crisis. It has also brought its value-added tax payments up to date having previously taken advantage of the deferral scheme.

It’s been a remarkable time with two profit upgrades in June and July, which wrong-footed analysts’ and investors’ expectations. If upgraded guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) are delivered (above £9.6 million), it would match 2019, an outcome which seemed impossible a few months ago.

The key driver seems to have been greater penetration of online sales through the likes of Amazon, Ebay and Groupon.

Founder and chief executive Simon Showman noted: ‘The investment that we have made in our online segment in recent years is delivering particularly good results, and our adaptive, resilient and flexible business model is standing us in good stead.’

This highlights one of the key strengths of the company’s business model and operating structure, which is the broad cross-section of distribution channels it has built, from large national and international multi-channel retailers to smaller national chains, discounters, general retailers and online retailers.

The other driver has been the huge shift to home working which has resulted in higher demand for cleaning and cooking products. During lockdown people focused on hygiene and cleaning which buoyed sales of the Beldray brand which makes vacuum cleaners, steam cleaners and laundry products.

The Salter brand received a boost from more people cooking at home with products such as saucepans, three-in-one snack makers and air-fryers doing particularly well according to the company.

Don’t let the rally in the stock put you off buying the shares as they are running behind the improving fundamentals.
An update on 7 September should see analysts introduce medium-term forecasts, acting as another share price catalyst as the market gets an idea of its earnings growth capabilities.

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