I tend to avoid buying stock in newly-listed companies. The disastrous Deliveroo IPO showed that IPOs are often priced too high, leaving holders under water from the off. But there are exceptions. The big jump seen in the Victorian Plumbing (LSE: VIC) share price after its Tuesday IPO showed that.
What is Victorian Plumbing?
Founded in a shed in 1999 by Mark Radcliffe, Victorian Plumbing has grown to become a major online retailer. It sells 24,000 branded and in-house-designed bathrooms and accessories. Selling to both the public and trade customers, the company now operates a 109,000 square foot warehouse in Skelmersdale, Merseyside. It also has a showroom in Formby and a ‘digital growth hub’ in Birmingham.
What most sticks out to me about VIC, however, is that its £850m valuation on admission made it the biggest company to IPO on the Alternative Investment Market (AIM). Thanks to a flurry of trading over the last two days, this market cap has already charged ahead of the £1bn mark!
Victorian Plumbing’s share price sat just below 336p as markets closed yesterday. That’s already a great return for those institutional investors that bought in at 262p a pop.
So, would I buy it?
Would I buy at the current price? Quite possibly. There are many things I like about this company.
For one, it’s already generating serious money. Revenues of almost £209m were logged in the year to September 2020. This arguably makes the investment case far less risky compared to the average AIM-listed blue-sky stock.
Another attraction is the online-only business model. Multiple UK lockdowns have only served to accelerate the structural shift to digital shopping. VIC is clearly well placed to capitalise on this.
The growth potential is also pretty compelling. By placing more emphasis on attracting trade customers and growing its European presence as planned, I think Victorian Plumbing might replicate the success of £5bn-cap kitchen supplier Howden Joinery in time.
Knowing that its founder will still have ‘skin in the game’ is another positive. True, Mark Radcliffe’s share ownership will reportedly drop massively from 72% to 46% post-IPO. However, his interests should still be firmly aligned with retail investors like me. Incidentally, it’s worth noting that heavyweights such as JPMorgan are also on the register.
Priced in?
Nevertheless, there’s no guarantee that the Victorian Plumbing share price will keep rising. Aside from a lack of track record on the market, one needs to bear in mind that the firm is listing at a time when the home improvement industry is conveniently booming. Companies like B&Q owner Kingfisher and Travis Perkins are just two examples of those that have reported strong trading over the last year or so.
Whether this lasts is difficult to say. I certainly wouldn’t be surprised if revenue growth at VIC does moderate over the current financial year as we spend our money on other things post-pandemic. As such, I do question whether now is the right time to snap up its shares. Let’s not forget that every transaction always involves someone who thinks it’s actually time to sell.
Watchlist bound
Victorian Plumbing grabs my interest in a way that other recent IPOs have not. Even so, I’m content to wait for the initial excitement to die down before deciding whether to take a stake. Today, it’s on my watch list.
