Ultimate Products considering buy backs with surplus cash

Homeware brands owner Ultimate Products (LON: ULTP) says interim revenues have fallen because of lower supermarket orders as they ran down their stocks. However, margins are improving. Cash generation is strong enough to consider share buy backs.

The current policy is to pay 50% of earnings in dividends. Over the current 12-month period, net debt is expected to halve to £7.4m and Ultimate Products could move into a net cash position within two years on current expectations. Management wants to retain a level of gearing because it believes that it is capital efficient.

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In the six months to January 2024, revenues were 4% lower at £84m. As well as destocking, the closure of Wilko held back progress. Freight rates have fallen during the period. The improved margins mean that there could be small uptick in interim pre-tax profit.

The company’s brands include Salter and Beldray. Stock positions are returning to normal levels and that provides hope for the second half.

Andrew Gossage has moved to chief executive, while the previous incumbent Simon Showman has moved to chief commercial officer. Interim results will be published on 9 April.

Shore Capital is maintaining its 2023-24 pre-tax profit forecast at £18.4m, up from £16.8m. At 147p, the prospective multiple is less than ten with share buy backs potentially enhancing earnings in the future. The forecast dividend of 7.8p/share provides a yield of 5.1%.

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