The investment thesis for Victoria PLC is framed around finding value in imperfection. The company is imperfect (high leverage), in an imperfect market (unloved UK), with an imperfect capital structure. This combination creates opportunity for deep value investors.
To resolve its distressed 2028 notes, Victoria PLC made an exchange offer and then pulled it. The analyst speculates this was a strategic move to "flush out" and identify its disparate, retail-heavy bondholders ahead of a future negotiation.
An auditor flagged a single missing £150,000 invoice on £1.2 billion in revenue. While later cleared, the British press amplified the issue, creating a crisis of confidence that was catastrophic for the highly levered Victoria PLC's stock price.
Despite holding a potentially controlling preferred stock position in Victoria PLC, Koch Industries has been closing its European offices to refocus on the US. This strategic retreat suggests they are unlikely to pursue a full takeover, favoring a negotiated exit instead.
A key source of liquidity for the distressed company is its real estate portfolio, particularly from its Balta acquisition in Belgium. These assets can be sold for an estimated €80-€100M with minimal tax leakage due to legacy losses, providing non-dilutive capital.
Victoria PLC's competitor, HEDLUM, has been a price aggressor but is now in distress and may face bankruptcy. HEDLUM's potential failure could rationalize market pricing and allow the premium-focused Victoria to gain significant market share as a result.
The UK still charges a 0.5% "stamp" tax on stock purchases, a historical artifact from its colonial era. This transaction friction, unlike in the US market, disincentivizes trading and investment, particularly for retail participants, contributing to overall market inefficiency.
Victoria PLC's key lender, Koch Industries, is disincentivized from fully converting its preferred stock. Crossing a 30% ownership stake in a UK company triggers a mandatory takeover offer for the entire firm, making a negotiated settlement more likely than a complete equity wipeout.
The flooring industry saw a pull-forward of demand during COVID, leading to a subsequent crash. Victoria's volumes are 20-25% below trend. Every 5% recovery in volume adds £25 million to net income, representing roughly half the company's current market cap.