Entrepreneurial talent and a deeply customer-centric culture are at the heart of Lords Group's (LORD) DNA, and that's translating into growth and downside resilience.
Over its 35 year history, this best-in-class distributor of specialist building, plumbing, heating and DIY products has not only consistently outperformed the sector, but is also firmly on track to deliver landmark revenues of £500m in 2024, on top of a 7.5% EBITDA margin over the medium term.
Today’s better than anticipated year-end trading update was another step in the right direction, showing record FY 2022 turnover, EBITDA and adjusted PBT of at least £450m, (+23.9% vs £363m LY, +0.2% LFL), £28.3m (+26.9% YoY) and £16.0m (+29% YoY).
Better still, momentum accelerated sequentially over the period, with H2 LFL sales climbing an estimated 6% compared to H1 (when sales slipped -3.3%) thanks to robust demand, and an easing of boiler supply issues across the industry. Elsewhere costs and cashflow were tightly controlled, too, as FY22 EBITDA margins nudged up to 6.3% (from 6.1% last year) and pre-IFRS16net debt closed the year at a comfortable £23.5m.
It's true that, going forward, some near-term economic headwinds exist, especially around new build housing construction. Yet equally, management have successfully navigated through such conditions many times before and know which financial buttons to push.
Besides, 80% of Lords' revenues are derived from more predictable RMI work, where literally millions of UK properties still need modernisation. And the company is enjoying considerable interest for its energy efficiency and decarbonisation products, such as air source heat pumps and electric boilers, which are helping families offset the cost of living crisis.
CEO Shanker Patel commented: “We enter 2023 in a strong financial position that will enable us to continue to invest in our 3 P’s (People, Plant, Premises) to pursue organic and acquisitive led growth opportunities. While market conditions may become more challenging in the short term, the Group has substantial organic growth levers through new geographies and product range extension that provide our Group with the opportunity to continue its track record of growth.”
Looking to forecasts and price targets, finnCap believes the fair value for the shares is 114p (versus the current 86p) and suggest the company is "an excellent buying opportunity". Meanwhile, broker Stifel has a 100p/share price target based on 2023 adjusted EBITDA, PBT and EPS rising to £29.2m, £16.4m and 7.0p, respectively, on revenues +4% higher at £468m.
That puts Lords on a forward PER of only 11x, an attractive rating when you also take into account the 2.8% dividend yield and a reasonable valuation for a tried and tested GARP (growth at a reasonable price) stock.