Movin' on UPGS!

15th Aug '23 by mojomogoz

3 comments 448 reads

I have decided to anoint UP Global Sourcing Holdings (LON:UPGS) with a new theme song:

You were blind and I want to help you see, to make a believer out of you. You were lost but now you are found...

It talks to the many doubters out there (implicit in the price!). Clearly the song was a shamanic premonition about what would happen in 30 yrs time to UPGS.

Q: What you all missing? A: UPGS is a profitable quality growth stock that despite massive persistent exogenous headwinds has grown positively but not as much as it could or will as headwinds ease from severe (to a more typical low to moderate range).

I read comments and see that people get very confused in their labels and heuristics around the stock. For example, there are persistent doubts that anything other than a modest premium should be on the stock as it lacks genuine star brand power. Cookie cutter wisdom! Its not the brands dudes!! Its the system!!! UPGS is a competitor consuming virus!!!! (enough exclamations now)

What do I mean? Yes the brands do have cache and value and they help place products with retailers and make customers return and/or flip from maybe to yes in their buy decisions. Very important. But this is just the exterior of the doughnut...and we all know its the juicy jammy inside that's the killer. The jam at UPGS is that they have a superior or killer operating model to all their competitors. I'm not going to bore you (or me) with a description. Its something you need to look and decide for yourself. IMO the many travails of covid illustrate this. I'm

This is a 3 year old post from me covering the data from mainly pre covid where I claim that UPGS's growth is significantly under appreciated and was set for a dog leg inflection up as the business matured and transitioned fully out of cheap/commodity product and into more branded and higher quality customers with an overseas growth take-off too:

https://www.stockopedia.com/co...

Its obviously out of date and reconstructing the data post covid hiatus makes no sense. Nothing can be the same or a continuum after that and UPGS needed to find a new grounding. But my prospective investment gamble is that UPGS can resurrect this growth trajectory and make the headway…

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Trident

15th Aug '23

Hi Mojo

I have bought into the early story of UPGS when I think it was the non-exec Chairman bought a great load of them in the market to fill up his pension scheme. They then slightly disappointed the market (can't now remember why) and the price retrenched. After licking my wounds I bought a heap more when I saw the business recuperating.

Its good to hear in the latest RNS that their online business is thriving. Obviously they have made moves into the German market, and it will be interesting in their full results how this is faring.

I would like to think a well priced brand will prosper even if the German economic miracle is faltering.

The cash generation has always been an acid test of mine beyond the usual EBITDA one tends to see touted, and UPGS has looked good on this front for quite a number of years, with a solid yield at these levels.

So, like you I feel this is a pretty strongly founded business capable of weathering storms. I think we are going to see it hover around these valuation levels for a while yet just because its growth is relatively modest still, and no-one is rushing to buy UK retail orientated stocks at the moment. But I am not rushing to exit, and I think this stock will reward the patient.

mojomogoz

You are probably right. I ain't trying to call any imminent turn / take-off. I think in years and I believe UPGS will be a meaningfully bigger business 5 years from now. In a different market environment doubling sales over 5 years (as they approx did looking back despite some severe disruptions) will be much more rewarded in valuation terms on top of the associated eps growth. That's all decent and I'll be very happy with that...but I believe they can do even better than that. It won't be a straight line but at some points conditions are smooth and all lines of business expand and we can get a pretty big one or two year jump. Add in Europe and maybe ANZ and there's step change potential there too. Foolish to forecast such things obvs....but the price gives a free option on that growth at this moment. Heck it's underpriced for moderate growth!

It doesn't take a great environment for growth to accelerate...just retailers feeling clear they have a handle on what lies ahead of them and how to position for it.

BnB

I'm gong to "Come Together" with you on this one. I've "Loaded" up at these levels over the last months and hope to see the shares "Higher than the Sun" some day in the future.

Movin' on UPGS!

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Mojomogoz

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