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  • Writer's pictureMark Watson-Mitchell

Likewise Group – the growth continues and the profits start to roll in

The last eighteen months have been positively impactive for the Likewise Group (LIKE.L) the fast-growing UK floor coverings distributor – a period during which it turned into profitability, floated on AIM and subsequently has made two important and strategic acquisitions.

This morning the £76m capitalised group announced its results for the year to end December 2021, showing a 28% increase in sales to £60.5m and an underlying pre-tax profit of £1.6m against the previous loss of £1.5m.

Apparently, its margins improved from 26.1% to 30.0% due to a much better product and customer mix.

Both profits and assets have seen increases

Not only did the profits increase but so too did its assets – at the year end its property was valued at around £20m, while its cash balance ended at £3m.

By the end of April this year, following the two important acquisitions of Valley Wholesale Carpets in January and then Delta Carpets in April, its net assets had increased from the end year £22.4m to a much healthier £38.7m as at the end of April.

Cautious of cost rises countered by selling price increases

The group has obviously become very wary of the economic impacts of both COVID-19 and now the war in Ukraine, which has increased cost prices.

It has also borne added costs in energy, basic raw materials and freight costs of imported products.

In response, the group has been raising its selling prices, the latest was at the beginning of May.

Acquisitions have added to spread of infrastructure advantages

The recent acquisitions have helped to expand and reorganise its distribution and operational activities much more efficiently.

The company has continued to increase its sales revenues and its gross margins on a like-for-like basis.

With the infrastructure established and further investment in sales and marketing, the group considers that it has the management and the teams in place to outperform market conditions and increase its market share.

The company is extremely acquisitive, as can be seen by its first two purchases in 2022 – so more acquisitions have to be expected over the next couple of years.

Company Boss sounding confident

With this morning’s results announcement CEO Tony Brewer stated that:

"Likewise has achieved a good start to the year with a continuation of the positive sales trend and whilst being aware of inflationary pressures and general consumer sentiment, is currently on target to achieve its objectives for the year.

Likewise is extremely optimistic with regards to the Medium and Long-Term given the business and strong foundations that have been established to date."

Broker very positive of future growth

Following this morning’s results, the group’s joint-broker Zeus Capital rated 2021 as a ‘transformational year’ and noted that despite the economic headwinds the business has structural growth.

The broker analyses that the company has the potential for growing its annual revenues at a compound annual growth rate of a very impressive 38%.

Analyst Andy Hanson has current year estimates out now for the group sales to increase 90% to £114.9m, while its pre-tax profits could almost treble to £4.2m, with adjusted earnings jumping up to 1.3p (0.8p) and with a first-time dividend of 0.3p per share.

The benefits of the acquisitions will kick through in future years, with Hanson going for £136.6m sales and £6.2m profits for next year, giving earnings of 1.8p and a 0.5p dividend per share.

For the 2024 year he goes for £160.8m sales, £9.1m profits, 2.7p earnings and a 0.7p per share dividend.

That profit progression shows a steep fall in the current and prospective price-to-earnings ratios from 39 times to just 12 times inside three years.

Good news for its shareholders

Zeus Capital is understandably convinced that Likewise is on a strong growth path, highlighting that the group offers the ‘best in class’ in a fragmented market with single dominant player and a management team that has done it before.

Apart from its management, with some 21% of the group’s increased equity, other investment names in its ranks include CRUX Investment Management, Allianz Global Investors, Octopus Investments and AXA Investment Managers. So it is assumed that the progress to date has pleased one and all.

The group’s shares, floated last August at 25p, then subsequently peaked at 52.5p in December, before drifting at around the current 31p.

At that level, considering the group’s growth path and potential profitability over the next few years, the shares have distinct investment appeal.

The company will be holding its 2021 AGM on 24 June, at which time it would be good to have an Interim Pre-Close Trading Update, otherwise we will have to wait until August time for such news, unless, of course, another acquisition is announced in the meantime.

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