Shore Capital downgrades Victorian Plumbing to 'hold'

Shore Capital has cut its rating for Victorian Plumbing from 'buy' to 'hold' following some mixed first-half results from the bathroom specialist last month, raising concerns about profitability.

The broker highlighted a "strong performance" from the company in the second quarter, delivering revenue growth of 9% following a slower start to the year.

However, higher depreciation and interest led management to cut its full-year profit before tax guidance to £23-24m, compared with estimates of a figure closer to £27m.

Victorian Plumbing also announced the relaunching of the MFI brand as an online pureplay home and furniture specialist, which Shore Capital said offers "significant revenue potential" but at a short-term cost of £6m of profit over the next two years.

Despite the company's "strong track record of growth", Shore Capital had some reservations about the move: "While we welcome the entrepreneurial spirit, we view the expansion into Home as one that may pose some challenges for VIC, given the strong existing competition (e.g. Dunelm, DFS, JLP, Next, Ikea), the expectations of lower margins versus the core business and the fact that online penetration appears stagnant post-COVID."

The broker has lowered its fair value estimate for Victorian Plumbling's shares to just 80p, from 130p previously.

The stock was more or less flat at 77p by 1559 BST.