Shares in online bathroom retailer Victorian Plumbing (LSE: VIC) sunk 40% this morning after the company warned of “subdued” market conditions and higher costs. The share price has now fallen by 70% since its IPO in June.
However, I’ve gained a good impression of this business since its listing. Sales rose by nearly 30% during the year to 30 September and the group is generating plenty of profit. I reckon today’s share price crash might have left Victorian shares trading at bargain levels.
Good and bad news
Today’s warning came alongside a strong set of results. Victorian Plumbing’s sales rose 29% to £269m last year, while underlying pre-tax profit rose 23% to £29.1m. Customer numbers rose by 13% to 638,000 during the year, as the business benefited from the lockdown DIY boom.
That was the good news. The bad news is that things are expected to be tougher this year.
Sales since October are said to be “broadly the same as last year”, with shoppers spending more on leisure and less on home improvements. That’s no real surprise, in my view. But it does mean it will be harder for Victorian to hit growth forecasts for this year.
To try and solve this problem, it looks like the company is planning to absorb higher product and labour costs in order to keep its prices down. Founder and CEO Mark Radcliffe hopes this will enable the firm to expand its market share and generate further sales growth.
Will profits keep rising?
Based on the numbers provided today, my sums suggest that Victorian Plumbing’s profits may be flat this year. Depending on how market conditions change, I think we could even see a drop in earnings.
However, I think the longer-term growth opportunities are still attractive. The brand appears to be popular with customers, with an Excellent rating on Trustpilot, with over 142,000 reviews.
Sales have doubled since 2018 and the group’s operating profit margin of 10% is higher than either Topps Tiles or B&Q-owner Kingfisher.
Radcliffe is targeting continued growth by adding new products, such as tiles and lighting, and by offering a dedicated service to trade buyers. This all sounds sensible to me.
Victorian Plumbing share price: too cheap?
I normally avoid recent IPO stocks that have crashed. But I can see a lot to like about Victorian Plumbing.
The group has no debt and is still led by its founder, who has a 45% stake in the business. Although he pocketed an eye-watering £212m in June’s IPO, I reckon he should still be motivated by his large shareholding.
I thought the shares were too expensive when they floated in June but, right now, they’re starting to look cheap to me. After today’s slump, I estimate VIC could be trading on around 12 times 2022 forecast earnings. For a growing online business with no debt and proven management, I think that’s attractive.
The main risk I can see is that the slowdown in sales will be worse than expected. Last year’s DIY boom was unusual, after all. We don’t know what will happen next year.
For this reason, I plan to wait for the company’s next trading update before deciding whether to buy. But I’m definitely tempted. I think this business is worth watching.
