MIDAS SHARE TIPS: Why Victoria still warrants the red carpet treatment
Geoff Wilding is a man on a mission – to take shares in carpet maker Victoria up to £25 and sell the business to a large US company.
Today, the stock is priced at 1377½p so there is some way to go. However, Wilding has already shown his mettle and if he continues to deliver on his promises, the gains will be considerable.
Wilding is a down-to-earth New Zealander who has been turning round underperforming companies for almost 20 years.
He became chairman of Victoria in 2013 following an acrimonious boardroom coup. At the time, the shares were less than 100p and the company was at rock bottom.
Royal approval: Victoria made the carpet for the wedding of the Duke and Duchess of Cambridge in 2011
Far-sighted shareholders who bought back then have already been handsomely rewarded. But even today there is significant potential.
Victoria is the largest carpet maker in the UK and the second largest in Australia. Founded in Scotland in 1895, the company is based in Kidderminster, Worcestershire, home to the traditional carpet industry.
It has been carpeting Royal households since 2006 and in 2013 received a Royal Warrant from the Queen. It even provided the red carpet for the wedding of the Duke and Duchess of Cambridge in 2011.
When Wilding joined in 2012, costs were high and pre-tax profits had fallen by almost 20 per cent to £1.55 million. He set about cutting costs, selling non-essential sites in Australia, raising prices to more commercial levels and invigorating the sales team.
He also worked out that Victoria needed to grow so it could strike better deals with suppliers, offer a greater variety of goods to retailers and drive down the cost of transporting carpets round the country.
Along the way, he regained the support of Victoria’s banks so the company could make acquisitions. Since then, five transactions have been completed, including Westex, one of the country’s highest-quality carpet firms, which supplied carpets to the Shangri-La hotel at The Shard in London.
Most carpet makers are private family businesses run by owners approaching retirement. Wilding offers them a way out, buying their companies and keeping them on until they retire. Obviously, some are in better shape than others and Wilding is selective, looking at dozens of businesses before homing in on one or two.
He has chosen well so far. Brokers expect revenues will almost double to £254 million in the year to March 31, with profits up from £7 million to at least £15 million. Further strong growth is expected next year, too.
To date, Wilding has used the company’s greater scale primarily to achieve better terms with suppliers. Over the next financial year, the aim is to reduce distribution costs.
Victoria’s biggest single customer is store chain Carpetright and even that firm accounts for just 4 per cent of sales. Retailer John Lewis is a customer too, but most of the rest are small, independent firms scattered around the country.
Victoria’s biggest single customer is store chain Carpetright and even that firm accounts for just 4 per cent of sales
Transporting carpets to them can be expensive if a lorry is only taking one or two orders at a time. But the larger Victoria gets, the more orders it receives, so lorries become more full and the delivery cost per carpet falls.
Victoria’s acquisitions have all been in the UK so far, but a sixth deal is expected in the next few weeks – Belgian firm Lano. Around the world, the dominant carpet markets are North America, the UK, Australia, New Zealand and mainland Europe (though about half of the carpet sold in the UK is manufactured in Europe).
Wilding’s medium-term aim is to become the largest carpet maker everywhere bar North America. At that point, the logic goes, the business will be an appetising morsel for a US giant to swallow up.
Mindful of debt and the risks of overexpansion, Victoria is likely to limit acquisitions to a couple a year, but even that should make a material difference to sales and profits by 2018.
Reassuringly too, Wilding is the single largest shareholder, with 33 per cent of the shares, so he is incentivised to make this business work, particularly as he takes home a salary of just £65,000 with no bonuses or options – extremely modest by comparison with his peers.
The Victoria board is compact, comprising Wilding as chairman, a finance director and three non-executives, including a member of the Anton family, which founded the firm.
Some concerns have been expressed that too much power is vested in Wilding, but in time a chief executive may well be added to the board.
Midas verdict: There is no doubt that Victoria has already come a long way, but the shares have further to go. Buy.
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