Victorian Plumbing set to burst onto Aim

Jerome Powell
  • The online bathroom specialist is set to start trading on Aim on 22 June under the ticker ‘VIC’
  • Victorian Plumbing has a track record of profitability, with operating profit jumping by 90 per cent year-on-year in the six months to 31 March

Adding to the flurry of IPOs we have already seen this year, online bathroom products retailer Victorian Plumbing is set to make its market debut on Aim on Tuesday. The company and its existing shareholders are selling 113m shares at 262p each, giving it a valuation of around £850m – that equates to the largest ever float on London’s junior market.

Founded by chief executive Mark Radcliffe in his garden shed back in 2000, Victorian Plumbing is a one-stop shop for bathroom equipment for both the public and trade customers, supplying everything from tiles to taps. It sells more than 24,000 products from 125 brands and three-quarters of its revenue comes from its own of range products. The own brand portfolio generated a gross margin of 49 per cent in the year to 30 September 2020, versus just 30 per cent for third-party products.

The company has ascended to become the UK’s second largest bathroom products retailer and leading online player in a market that research company Mintel estimates is worth £1.4bn. It has now captured a 14 per cent market share, up from just 3 per cent in 2015.

Tapping into structural growth

As a purely digital business, Victorian Plumbing was already capitalising on the structural shift to online shopping pre-pandemic. According to Mintel, online retailers accounted for 29 per cent of bathroom market sales in 2020 versus 16 per cent in 2015, and they are rapidly closing the gap to more general DIY retailers, whose market share stands at around 35 per cent.

Covid-19 has provided an additional tailwind to the company’s growth story. As with the likes of B&Q owner Kingfisher (KGF) and Travis Perkins (TPK) spin-off Wickes (WIX), Victorian Plumbing has benefitted from the pandemic-driven boom in home improvement projects. The six months to 31 March saw revenue jump by almost 50 per cent year-on-year to £141m, while operating profit surged by 90 per cent to £14.6m. The company dispatched more than 480,000 orders during this period – a more than two-fifths increase versus a year earlier – with the average order value rising by 4 per cent to £289.

Such spectacular growth rates are expected to moderate somewhat as the pandemic abates, but as the shift towards e-commerce continues, Victorian Plumbing is guiding to 20 per cent annual revenue growth over the medium term.

Radcliffe family to retain control

As part of the IPO, Victorian Plumbing’s existing shareholders will sell around 109m shares for £286m. Radcliffe is the company’s largest shareholder, and he will divest £212m-worth of shares, reducing his holding from 72 per cent of the company’s issued share capital to 46 per cent. His mother Carole and brother Neil are also shareholders, and following admission, the Radcliffe family will retain majority control with a 58 per cent stake. The free float available for public trading will be around 35 per cent.

The company itself will also issue just over 4.4m new shares, and says that the placing has “attracted strong support from high quality institutional investors and was significantly oversubscribed”. The £11.6m of proceeds will be used to pay for the costs of the IPO and will also be invested in growing the business.

Victorian Plumbing is aiming to widen its product offering and drive more sales from trade customers, who typically spend more per order and provide a higher level of repeat business. At present, around 14 per cent of total revenue comes from the trade.

In the medium term, management is also looking to expand into continental European markets such as France, Germany and Spain, which they believe have similar dynamics to the UK.

Should investors take the plunge?

There has certainly been no shortage of IPOs this year, with 17 debuts on the Aim market alone from January through May. Online businesses, in particular, have been looking to entice investors with their burst of growth during the pandemic. Radcliffe says that “[a]s we are now the leading online retailer of bathroom products in the UK, it seems the ideal time to join the UK stock market.”

Liberum analyst David Mak believes that now is a good time to consider new market entrants. “The two years immediately after a period of crisis or turmoil has historically proven to be amongst the best periods for investments in IPOs,” says Mak. “This year and next would be one of those periods.”

But investors in London have been adopting a cautious approach so far this year. They haven’t being buying into new companies indiscriminately, with some recent listings doing better than others (see table). For example, while cybersecurity specialist Darktrace (DARK) has almost doubled in value from its IPO price, Deliveroo (ROO) is still struggling to deliver for shareholders.

A mixed bag: some 2021 IPOs in London have performed better than others
Company Exchange Business Description Gain versus IPO price (%)
Alphawave IP (AWE) Main market Semiconductor designer -17.8
Darktrace (DARK) Main market Cybersecurity 93.3
Deliveroo (ROO) Main market Food delivery platform -33.3
Dr. Martens (DOCS) Main market Footwear retailer 14.1
Made.com (MADE) Main market Online furniture retailer 0
Moonpig (MOON) Main market Online greetings card retailer 29.7
Parsley Box (MEAL) Aim Direct-to-consumer ready meals -8.0
Pensionbee (PBEE) Main market Online pension provider -6.1
Trustpilot TRST) Main market Consumer review website 37.0
Source: London Stock Exchange, FactSet, Companies

Victorian Plumbing does make for an attractive proposition. Unlike many other businesses coming to market, it has a track record of profitability, and hasn’t accumulated debt in the pursuit of growth. The company was sitting on £22m of net cash (excluding lease liabilities) at the end of March, and has no long- or short-term borrowings.

But, as Russ Mould, investment director at AJ Bell, warns, “even good companies can be bad investments if you overpay.” For all its positive attributes, it is questionable whether a business that generated £24m of operating profit in 2020 merits an £850m valuation. Investing in IPOs is a risky business, and we’d advise waiting until the dust settles on this one before taking a punt.

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