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Carpet firm that is ready to roll Following a massive shake-up, carpet manufacturer Victoria has new management, a transformed balance sheet and real growth prospects. Change at the company began at the end of 2011, when a group of shareholders threatened to requisition an EGM and oust the board. Sufficient other shareholders sided with the rebels at the March 2012 AGM. Geoff Wilding was made Executive Chairman of the company in October 2012. In July he took control of 50% of the shares in Victoria. Shareholders voted for this dilution in exchange for a large special dividend payment.

‘the Rolls-Royce of carpets’ In October 2013, Mr Wilding secured the acquisition of premium carpet maker Westex for an initial payment of £16.0m. Wilding describes Westex as ‘the Rolls-Royce of carpets’. This was followed in March this year by the sale and leaseback of Victoria’s Kidderminster factory. The sale earned Victoria £5.8m but also brought an additional £0.5m pa of rental costs. This strategy marks a significant departure from how Victoria was previously run. Current management rationale is that Victoria is a carpet manufacturer, not a property investor. The logic is clear. Westex made

a profit of £4.5m in 2014 and contributed £1.2m to Victoria profits following its October acquisition. The return that can be made on a successful acquisition is well ahead of the cost of leasing a factory site. Add in the fact that carpet factories are typically operating under-capacity and the opportunity to significantly increase profits through acquisitions becomes clear. There are around 250 different carpet manufacturers across Europe. The Westex acquisition demonstrates how the plan works. Better still, competition to acquire carpet businesses is weak. The industry has been moribund for some time and running such a business requires niche know-how. Nor is a carpet operation easy to pass on to the next generation.

a bank that is keen to support this strategy Victoria has a clear plan to consolidate a collection of carpet makers and a bank that is keen to support this strategy. With a salary of just £65k it is dividends and share price appreciation that will have the greater

effect on the Executive Chairman’s pocket. The strategy feels very similar to what AIM superstar Judges Scientific achieved in the scientific instruments space. Fortunately for Victoria, it also has fashion working in its favour as British consumers are coming back to carpet.

carpet factories are typically operating under-capacity According to Stockopedia, Victoria is forecast to deliver 31.5p of EPS for the year to March 2015. Management has made clear its intention to recommence dividend payments next year, possibly paying as much as 30% of earnings as a dividend. Another acquisition as successful as Westex could see these forecasts beaten. Victoria is expected to become an income stock next year. The carpet manufacture industry is ripe for consolidation. Mr Wilding has successfully executed a buy and build in the industry before and appears determined to repeat the trick. Victoria (LON:VCP) FOR Consolidation model already working Carpet returning to fashion AGAINST Borrowings increasing Execution risk Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£39m 270p:277p 10.9 n/a 141p:470p


October 2014 AIM Prospector  
October 2014 AIM Prospector  

Featuring five AIM-quoted companies: Brooks Macdonald, James Halstead, Polar Capital, Shoe Zone and Victoria plc.