IN THE BACK

While they rarely make the news , distributors are critical to many industries . When they are well run , they also tend to offer organic growth in fragmented markets , high returns and good cash generation . Pricing power can also help offset inflation , which is particularly important today . This has meant distributors have historically traded on relatively high multiples , and the larger ones in the UK sit on P / E ratios of 15 to 25x . Given our small-cap value focus , we look for ones that are less well known and that we believe are undervalued relative to their potential .

Headlam distributes floor coverings to residential and commercial markets , sitting between global manufacturers and independent contractors and retailers . It is much larger than its nearest competitor and can leverage its scale through its purchasing terms , range and service , allowing it to consistently generate attractive returns . The company hopes to increase share among retailers , housebuilders and online customers to drive mediumterm growth and make its business less cyclical . It also aims to raise margins from 5.6 % to 7.5 %.

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