Welcome to my stock journal. I hope to improve as an investor by publishing research notes here. Today, I’m taking a closer look at UP Global Sourcing Holdings (UP).
Before I get stuck into UP Global Sourcing Holdings (LON:UPGS), I want to cover a recent sale. I sold Virgin Money UK (LON:VMUK) because I feared the impact on borrowers of the “cost of living crisis” but now suspect that I may have let my emotions get the better of me.
A major reason why I held Virgin Money was because rising interest rates should provide scope for banks to increase their net interest margin and indeed this appears to be the case based upon recent company updates.
In other words, the thesis was intact when I sold and my worry of an avalanche of loan defaults heading our way remains an unrealised risk that is looking more remote by the day given government willingness to bail-out all and sundry. And it really would take an avalanche of loan defaults to threaten Virgin Money since, like most of its peers, it boasts conservative capital ratios.
Still, in general I tend to shy away from banks because there is always uncertainty over the quality of their balance sheets and so perhaps it was the right call to sell Virgin Money due to questionable business resilience. Even if this was a case of letting my emotions get the better of me then that is ok, mistakes are inevitable.
I struggled to research UP because I simply don’t find the business particularly inspiring as it sells mundane homeware products such as mops and buckets, frying pans and weighing scales at budget prices. The unexciting nature of its wares is probably a good sign as it might explain an irrationally low price.
On the other hand, I have a nagging doubt about the quality of the business because it has cutthroat supermarket and discount retailer customers and little pricing power. This may prove particularly problematic in an inflationary environment and is another less encouraging possible reason why I struggled with motivation when researching.
Despite this misgiving, you may be surprised to hear that I have purchased shares in UP. I believe the group’s lack of pricing power is an acceptable weakness since it has maintained consistent gross margins over time, including during the past couple of covid plagued years.
…
