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The irrational hysteria in these chat rooms and even in the mainstream media around accounting issues relating to £400K of revenue has resulted in a share price which represents an EBITDA multiple for the Group of only 7x (taking into account £658m of Debt, £238m of Preference Shares, £600m of Market Cap and expected 2023/24 EBITDA of £214m) which is very low for a company with Revenues of £1.5B and a portfolio of businesses spread across the UK, Spain, Italy, The Netherlands, Belgium, Turkey and Australia.
By way of comparison, the single Spanish ceramic tiles producer Baldocer, with revenues of around €200m, sold last week for €425m plus an Earn Out arrangement, representing an EBITDA multiple of around 10x.
At 10x EBITDA Victoria’s share price would be over £10.
As is often the case, the market has way over-reacted to a bit of bad news which is obviously in fact quite immaterial, creating a great buying opportunity for more savvy investors.
Seems to be no doubt that they've gone on a massive shopping spree using other folks' money. That's possible of course, provided that the acquisitions work. The Saloni plant in Spain is colossal, mothballing that suggests that they've got production capacity way beyond their sales ability, not that surprising if you factor in the Indian producers taking their lunch. Pretending to be upmarket, whilst delivering nothing special to the consumer market, is again possible in upbeat economic conditions. In more hard pressed times, they'll get battered by the giants of the Pamesa and Stylnul groups IMHO. Don't know about carpets, have no experience of the old flea trap area.
Given static share numbers, this suggests that the Fixed Assets were acquired at prices including a lot of intangible value.
The related debt is very real, however.
As the Iceberg (Aug 2022) note says
"..Victoria also has no tangible equity (minus £302m) if you exclude intangible assets from acquisitions. This is because debt, largely senior secured notes and preferred equity, was used to pay for most deals. As a result, total debt was 120x higher at the end of FY22 at £1bn, versus £8.6m at the end of FY13.
Even worse is the free cash flow. The group’s total FCF for the last 10 financial years was minus £493m. Peers Headlam Group and Mohawk Industries, on the other hand, produced £246m and $2.1bn (~£1.6bn), respectively..."
E&OE, NAI
No position.
ATB
VCP net debt progression
£m 255 326 449 462 732 1,066
Net Fixed Assets
£m 149 197 297 286 357 627
Book Value
£m 266 302 241 208 203 119
Average Shares
m 103 123 125 129 117 116
Book Value ps
p 226 241 192 178 173 103
You make it seem so incredibly insignificant, and yet an audited accounts timescale was missed. Would a matter that required such a small adjustment really have delayed a matter that the law demands?
You take a strict supporting view at all times, that's your right.
The sceptical view is that debt has massively increased, and that spending in the sector is subject to harsher economic times.
Jury out.
The company has provided a full statement regarding the audit issues. In summary;
The issues apply only to one very small subsidiary (Hanover), which represents “less than 1.25% of total group revenue”, and less than £400K of payments that were applied to Hanover customer accounts could not be properly reconciled to original invoices. In other words, the issue is quite immaterial and doesn’t change the underlying value of the group whatsoever, despite the shorts’ desperate attempt to make it sound like it does.
“There is no wrong-doing at Hanover and nor are the auditors alleging this”.
The company has “identified the issue, allocated additional finance resources, and is putting appropriate controls in place and the issue is not ongoing.”
The scope of the audit was limited by the company because it became obvious that the auditors were not going to get to the bottom of the immaterial issue they were digging into in time to meet the company’s statutory obligation of publishing the audit report by the end of September, six months after the balance date, which could have been a more significant problem.
It is interesting to note that the same shorts have in the past made a huge fuss about the shorts driven “Iceberg Report”, which ridiculously claimed in another desperate attempt to discredit the company that Hanover didn’t even exist as an acquisition. The auditors have clearly had Hanover under the microscope for months, and have concluded that a very small percentage of its revenue cannot be properly reconciled to individual invoices, clearly confirming that Hanover does exist. The shorts that were previously urging that the shares were over-valued because Hanover doesn’t exist are now urging that the shares are over-valued because a very small percentage of Hanover’s revenue cannot be reconciled.
GT are a bit conflicted, since they allegedly failed to pick up the 2 x questionable acquisitions subject of Iceberg's article, one of which is named again in the current furore.
Do they 'double down' or 'fess up ?
Tough call.
Iceberg flagged VCP's debt levels as one of their other concerns, btw.
That research was from last year extrader. Having said that, the matters raised were never answered by the company.
I notice that Winny and Sharepoppets have got the knife in again, but I don't subscribe so I can't see what items he has identified as iffy.
As I said before, debt has risen year on year. By a HUGE amount. In an era of high interest rates, that has to falg up concerns doesn't it?
Bargain price seems to have been shortly after 10.00 @ £4 - 20 for some fortunate investors. £1 - 30 dearer to by now, so some may have certainly missed the boat. Company will prosper eventually. I can wait a couple of years.
PS One of the companies named by Iceberg - Hanover Flooring Limited - appears to be the same company that is the subject of Grant Thornton's currently qualified opinion, mentioned in today's FT article.
A 30 second google search ' vcp audit issues' threw up this lead
https://iceberg-research.com/2022/08/03/victoria-plc-vcp-ln-mites-under-the-rug/
suggesting some irregularities, involving 2 specific acquisitions
Companies Victoria claimed to have bought were in fact its own existing subsidiaries.
Victoria made these entities look unrelated i.e., their names were changed before ‘acquisition’.
At the least, Iceberg's dossier raises questions, AFAICS.
NAI, DYOR etc etc
I have no position.
CityWatcher, quoting the company's own PR BS doesn't impress. The way it stated the results was misleading and there is not use in pretending that the cost of acquisition has nothing to do with management. Margins here were paper thin before the recession kicks in, can you imagine how it will do in the coming year?
Reading their recently posted results it seems the share price drop today is owing to the cost of the acquisition. ...............
''The Group delivered a basic loss per share of 79.35p (FY22: loss per share of 10.61p) due to exceptional costs in relation to
acquisitions and restructuring and also the increase in amortisation of amortisation of acquired intangibles. However, adjusted
earnings per share (before non-underlying and exceptional items) on a fully-diluted basis was 39.06p ''
So there should be a slight recovery pre end of day, be it still a 50p drop on the day.
I did try and warn people not to believe the hype. We're going into a major recession and flooring is a luxury item for most. Jiggery pokery on the accounting front should be a major red flag.
Https://www.ft.com/content/52ba07ba-fca4-40aa-aea7-756114e6da5a
I was a little worried about this share, bought recently around 650 believing the hype, before it flopped.
Blackboulder - that’s a positive analysis of the results but the positive effect on the SP hasn’t lasted at all. I’ve had viagra pills last longer.
If I was the Chairman I would be prepared for a proper grilling.
The cash went down by £170m because the company spent £210m on acquisitions.
The Underlying EBITDA of £196m and the Underlying Net Profit Before Tax of £76.9m are simply the earnings made by the company after excluding restructuring and other one-off costs.
Underlying Earnings are always carefully reviewed by the auditors, so they are ‘real’.
Balta’s restructuring costs of £90m, which obviously won’t be repeated, for example, are technically an expense under IFRS, but are in fact an investment in future increased profitability, and as such should be viewed as a capital investment, just like an acquisition.
Sophisticated investors and analysts like Peel Hunt clearly understand this obvious point, which is why the shares went up, and not down, when the final results were announced, and why Peel Hunt has set a target price of £8.
Looking at its own accounts it made a pre-tax loss of £110.6m. Debt is up and it burnt through £170m (admittedly, due to some aquisitions). What's to like with a recession coming and discretionary spending under pressure? With Peel Hunt putting an £8 price target on this I think it may go higher but the writing is on the wall if you examine the figures and bear in mind a recession is coming. Just my opinion and of course DYOR.
Strong positive response from the market this morning.
The market clearly likes the clear earnings and cashflow growth outlook for the company, driving down debt.
From today’s announcement:
Record underlying revenue and EBITDA
Confident FY2024 outlook with a sharp increase in earnings and free cash flow expected due to completion of major integration projects.
All progressing rather well imo.
Can this thing just break through 650 already!
Great to see the audited financials are exactly as indicated last month.
Also good to see EBIT numbers by division added alongside EBITDA. Gives a good idea of the earnings potential now that the integration has been completed.
I particularly like that the average organic growth will add £25 million a year to net profit.
Any idea why there’s so much activity today? Could there be an announcement pending I wonder? Can anyone shed any light on this?
Indeed.
If the auditors are seeing something they are not happy about, it's time they told the market.
If everything is as happy clappy as the company insists, that's fine and dandy.
Let's be knowing
Year end 1 April - audited accounts scheduled for 15 August (a long wait in my opinion). 12 September still no audited accounts - why? Auditors doing the job they are paid to do by and for shareholders? Geoff not happy? Silence reigns.
AceOfClubs