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How ProCook plans to conquer the kitchen
Direct-to-consumer kitchenware specialist ProCook (PROC) debuted on the Main Market in November 2021 at 145p and the shares now trade at a modest 5% above their issue price.
The muted reaction to the stock market newcomer likely reflects the uncertain outlook for consumer spending and the fact ProCook remains under the radar of many investors.
Peel Hunt describes ProCook as ‘a disruptive force in the specialist kitchenware market’, one ‘poised to grow strongly’. From a low base, its market share and brand recognition are growing rapidly and the business is generating ‘sustainable 20%-plus EBITDA margins’, according to the broker.
THE PROCOOK STORY
Founded more than a quarter of a century ago as a family business selling cookware sets by direct mail, Gloucester-based ProCook has grown into a specialist kitchenware company selling its wares both in stores and online.
Guided by founder and CEO Daniel O’Neill, the £165 million business develops and sells quality yet value for money cookware, kitchenware and tableware direct to consumer through its own website and more than 50 own-brand UK brick and mortar stores.
ProCook also has an overseas growth angle, with its products also available in Germany and France with delivery options extending to Belgium, Austria, Luxembourg, the Netherlands, and Poland.
Its product range spans everything from pans and coasters to knives and eggcups, with its products ‘of similar quality but 30%-to-50% cheaper than its competition’ according to Peel Hunt, which in time, sees potential for ProCook to move into small kitchen electricals.
According to Euromonitor, the UK kitchenware market is currently worth about £3.6 billion and is growing at about 2% a year. ‘It is a fragmented market’, explains Peel Hunt, ‘and in 2020 ProCook had a 1.6% market share. It has grown this share rapidly, with gains in each of the cookware, kitchen accessories and tableware markets.’
UK kitchenware competitors include Tesco (TSCO), ASDA, Sainsbury’s (SBRY) and Morrisons, as well as IKEA, John Lewis and specialist rivals such as Lakeland, Le Creuset, Denby and non-stick pots and pans maker Tefal, which has a presence in the direct to consumer market but mainly sells its products through other retailers.
DIRECT LINE INTO CUSTOMERS IS KEY
Covid-impacted 2020 proved a boom year for the UK kitchenware trade as people spent more time in their kitchens, though the market has been growing solidly for some time amid the popularity of cooking and baking shows on TV.
Having the ability to sell direct to customers ‘is golden,’ argues Peel Hunt. ‘This gives ProCook a major advantage over the competition, as it controls every element of the product journey and the interface with the customer.’
Still a young retailer, ProCook continues to open new physical stores, ‘often with no more than a 12-month cash payback,’ according to Peel Hunt.
Recent openings include two stores at London’s Westfield shopping centres and ProCook has communicated a long-term target of around 70 UK stores. One other interesting aspect is the company has also launched a London cookery school to showcase its passion for cooking and further raise brand awareness.
Maiden first half results (16 Dec 2021) confirmed robust sales growth and firm market share gains, with revenue up almost 35% year-on-year. This reflected strong growth through the ProCook website against tough pandemic-inflated comparatives.
As a whole, the group’s e-commerce revenue declined by 3.7% year-on-year, though this was driven by management’s strategic decision to come off the Amazon UK marketplace at the end of June 2021, in order to benefit from being able to build relationships with customers directly.
Physical store sales more than doubled year-on-year following the reopening of non-essential retail in April 2021 and were up 77.7% on a two-year like-for-like basis.
Eagle-eyed investors will note underlying pre-tax profit was 11% lower at £3.6 million, pegged back by higher digital marketing spend and other growth investments.
But this also reflected the fact ProCook makes most of its money in the seasonally stronger second half including Christmas. ProCook delivered a record Black Friday and despite higher freight costs, maintained its high gross margin of 67.8% thanks to direct sourcing. The resilient company has thus far coped well with industry-wide supply chain issues and cost inflation.
Following the maiden results, Peel Hunt pointed out the new store opening programme is ‘firming up nicely, with landlords keen to help with upsizing and to get ProCook onto busy parks’. The broker also noted that overseas sales are building with the German ProCook website slated to open this spring.
Peel Hunt’s forecasts for the year to March 2022 point to a rise in adjusted pre-tax profit from £9.3 million to £10 million, ahead of £12.4 million and £14.4 million for 2023 and 2024 respectively and the investment bank has pencilled in a 1.4p dividend for the current year, building to 2.8p in 2023.
Based on the broker’s earnings estimates for 2023, ProCook trades on a mid-teens forward PE ratio of 16.7.