Interactive Investor

Insider: boardroom buying at AIM company with royal approval

A Royal Warrant hasn’t prevented a sharp decline in the share price, but the leader of this firm clearly believes the selling is overdone. There’s also buying at a successful gold miner where a rally is already under way.

20th May 2024 08:14

by Graeme Evans from interactive investor

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Victoria (LSE:VCP) shares have received £42,000 of boardroom support after the royal carpet maker and former AIM star stock traded back where it was at the onset of the pandemic.

Philippe Hamers, who has been chief executive since 2017, bought his shares on Thursday at an average price of 202.9p. They had been as low as 182p earlier in the week, representing a slide of 75% on July’s 722p and compared with near to 1,200p at the end of 2021.

Dramatic increases in the cost of raw materials and energy, wage inflation, subdued consumer demand and shipping disruption are among a number of recent headwinds.

Executive chair Geoff Wilding wrote in last year’s annual report: “Victoria’s operational management philosophy during 2023 is probably best encapsulated by Winston Churchill’s advice, “When you are going through hell, keep going”.

The message sustained a tenth consecutive year of growth, with underlying revenues of £1.46 billion reflecting the impact of two-dozen acquisitions in the decade since Wilding, a former investment banker, was installed chair in the wake of a boardroom coup.

The Kidderminster-based company, which was established in 1895 and has been listed on the stock market since 1963, employs about 6,750 people across 30 sites. It is Europe's largest carpet maker and the second biggest in Australia, as well as the leading manufacturer of underlay.

The company’s most recent update in March reported that wider market demand was down by about 20%, with conditions particularly challenging in Europe.

The performance has been better in the United States, but that won’t prevent an end to the run of annual growth after Victoria forecast lower underlying earnings of about £160 million.

Joint brokers Berenberg and Peel Hunt reduced their price targets to 300p following the end-of-year update, while Singer Capital Markets moved from 685p to 335p.

Once demand recovers, however, the company expects that various cost initiatives and efficiency gains will mean margins between 250 and 350 basis points higher than previously.

Hamers told investors: “I am confident, therefore, that Victoria will experience faster growth than the wider market as demand returns."

The company is also focused on reducing leverage, which stood at 3-3.5 times earnings prior to the rise in interest rates. It has been repurchasing its senior secured notes due in 2026, but with the balance sheet headroom to carry out a £25 million buyback of shares.

Shares closed on Friday at 209.5p, representing a 7% rise over the week. However, Singer Capital warned recently that patience will be required: “Investor confidence in forecasts needs to be rebuilt and tangible progress on deleveraging is needed.”

The company’s Victoria Carpets business was granted a Royal Warrant in 2013, two years after supplying the red carpet for the wedding of Prince William and Kate Middleton. Its shares surged 2,100% in the eight years to September 2021, making it one of AIM’s most popular investments.

A golden investment

The boss of Hochschild Mining (LSE:HOC) has marked a milestone for the South American gold miner by spending £235,200 on its FTSE 250-listed shares.

Eduardo Landin made the investment on Thursday at 159p, two days after Hochschild announced commercial production at its Mara Rosa mine in Brazil.

The company’s first operation in the country is on track to produce between 83,000 and 93,000 ounces of gold this year, part of a wider target of 343,000-360,000. Its other mines are Inmaculada in southern Peru and San Jose in southern Argentina.

Landin, who joined Hochschild in 2008 and became chief executive last summer, said: “This brings a new jurisdiction to the company and provides a springboard for further low-cost growth in Brazil.”

With Mara Rosa delivering production at a significantly lower cost, Hochschild recently secured an option to acquire 100% of Cerrado Gold's Monte Do Carmo project in the state of Tocantins.

The shares are up by about 60% this year as commercial progress has been accompanied by a record gold price. Adjusted earnings rose 10% to $274.4 million (£216 million) in 2023.

Peel Hunt expects that the price tailwinds will mean net debt peaks at a lower-than-expected level, opening the door for the board to reinstate dividends at interim results in August.

The shares closed the week at 168p, but the broker has a price target of 180p and believes the company’s growth trajectory is not reflected in a valuation of five times near-term earnings.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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