Kitchenware acquisition boosts margins at UP Global Sourcing

Management’s taste for acquisitions is paying off at kitchen and homeware specialist UP Global Sourcing (UPGS), which has returned to higher margins after the purchase of the Salter brand in 2021. No longer paying to license the scales maker helped to push UP’s gross margins to 24.4 per cent in the six months to 31 January, after falling last year to 22.8 per cent. UP also saw fit to boost the dividend by more than a third, and the shares rose 7 per cent on results day.

The boom in home cooking led to unusually high online sales last year, where margins were falling because of spiralling shipping prices alongside lower availability. Shipping is not yet back to normal, with “only about 20 per cent of ships” arriving on time, said UP’s managing director Andrew Gossage, but he added that both availability and prices have already turned a corner and further improvements are expected in 2022.

Stripping out the Salter acquisition, online sales have now fallen back by 12 per cent to £10.4mn in the six months to the end of January. This was more than offset by UP’s largest-earning division, supermarket sales, which stormed ahead with 36 per cent organic growth to £29mn.

Just as supply constraints are starting to ease, demand from consumers could be in danger. Inflation is squeezing household budgets and Gossage said that he expects there to be a “smaller market” for UP’s products over the next year.

Management is therefore focusing on growing market share. This should be helped by UP’s acquisition of German electricals brand Petra in 2021, to be rolled out with Germany’s largest ‘hypermarket’ groups in “late 2022 or early 2023”. At the same time, low-cost pots and pans, kettles and toasters are towards the more non-discretionary end of discretionary spending, which could afford UP some protection from consumer headwinds against sellers of bigger-ticket items. Hold.

Last IC View: Hold, 165p, Apr 30 2021