GCISupreme acquires iconic Typhoo Tea brand for £10.2m, expanding consumer goods portfolio
There's massive opportunity 'in dem' smallcap hills. In fact, I'm more bullish now than I've been for the past 4 years, as evidenced by their low valuations, accelerating top line, and recent M&A surge.
The latest being today's £10.2m synergistic acquisition by () from the administrators of Typhoo Tea - a beloved UK heritage brand that has been enjoyed by consumers for over 120 years and remains one of the country's top 5 names.
So why enter the hot drinks market?
Well, not only is this a niche, resilient, and inherently cash-generative sector, but also the transaction should be earnings-enhancing in year 1 (adjusted), and in one fell swoop adds another leg to 's stable of leading ambient and non-perishable FMCG brands across vaping, sports and nutrition, batteries, soft drinks and lighting.
What's more, Typhoo Tea lifts the group's non-vape annualised sales to £120m, whilst equally fitting neatly into its well-oiled distribution/supply chain and offering significant cross/upselling potential.
But that's not all. The financials are compelling too.
In Sept FY24, Typhoo Tea generated revenues of £20m and (once integrated) should deliver 30% gross margins based on its capital-lite model. Moreover, after deducting advertising spend, this should ultimately translate into 10%+ EBIT margins or >£2m of operating profit vs a £4.6m PBT loss LY.
This means the £10.2m deal would have been concluded on a steady-state 5x EV/EBIT or 7x PER, which is value accretive by anyone's standards for one of the UK's most beloved heritage brands. Better still, there is £7.5m of asset backing to boot (stock and debtors, but no creditors) that has effectively been thrown in for free by the administrators.
Sure, integration is going to be key, as well as winning new consumers (top line growth) and not losing shelf space with the major grocers given the disruption caused by the administration process. However, management have an excellent track record in this regard (re Clearly Drinks).
CEO Sandy Chadha commenting: "The acquisition of Typhoo Tea marks a significant step in our broader diversification strategy and brings one of the most iconic UK consumer brands into the Supreme family. I believe Typhoo Tea will thrive under our ownership, further benefitting from Supreme's significant market reach and successful track record in creating brand loyalty, making us an ideal fit for this business.
Having established our Soft Drinks division earlier in the year, we believe the addition of Typhoo Tea and its highly complementary blend of great value and premium tea brands, creates tangible cross sell and product innovation opportunities in the near-term, alongside avenues into credible UK retailers that Supreme has been looking to partner with."
Lastly, I have a 240p/share valuation on the stock, representing substantial upside from current levels. Plus, at 167p the shares trade on attractive 8.3x PER & 4.8x EBITDA multiples, and pay a 3% dividend yield.
The £10.2m consideration has been funded from's own cash resources, leaving proforma net debt (pre IFRS 16) of around £8m (or 0.2x EBITDA).
Follow News & Updates from Supreme plc:
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.