More stable growth going forward ?

Quite strange to see the trading history of Universal since listing in Nov 20 :
1/ In the first phase, it regularly increased from around 4 $ to peak at 8 $+ in Nov 21.
It was explained by the 80 % increase of their underlying EBIT in FY 21, driven by 28 % lfl sales growth (after + 11 % in FY 20).

2/ Then the stock had a regular decrease to bottom at 2.60 $ in June 23.
Again, it followed the trend of their earnings, decreasing between FY 21 and H1 23, due to the decrease of lfl sales growth.

3/ Since then, Uni share price had a major rebound to around 7 $ now, due to a significant rebound of their results, including in FY 24 when consumption was tough.
It was explained by the rebound of earnings during H1 24 (despite decrease of lfl sales), followed by a rebound of lfl sales during H2 24 (and margin increase).

Anyway, probably worth mentioning that since FY 20, underlying EBIT increased on average by 17 % per year, which shows the underlying performance during this volatile period.
So, I suspect that today's valuation mainly reflects the volatility of the growth, rather than the total average growth.


While retail may remain a tough area for some time, Universal seems well placed.
Main reason : their ability to get market shares.
Best illustrated by their opening of new stores and high same store sales growth for their main chains, while independants are struggling and Glu (one of their main competitors) has announced that they will close half of their stores.

This ability to gain market shares seems to be due to their real ability to develop new brands.
It allows them to sell at rather high prices and deliver high margins (60 % gross margin).

Interesting to see that most of their growth is coming from their own initiatives :
- sales growth driven by the success of their brands,
- gross margin also driven by their own brands,
- good cost control.

As usual, valuation remains a subjective matter.
But today's valuation of a PE 25* of less than 15 does not seem to reflect the medium term growth profile of the company.
The free cash flow yield** of 6 % looks also high enough for a company with such a profile.

Looking at the past correlation, the main indicator to follow is probably lfl sales, for their main chain (US).
LFL sales for US decreased during H1 24, turned positive during H2 24 (+ 6.6 %) and is now further accelerating : + 12.5 % for the first 7 weeks of FY 25.



* based on 20 % underlying NPAT growth in FY 25 (after + 18 % in FY 24). My estimate.
** using FY 24 figures (after lease), based on estimated maintenance Capex only (5.4 m$).