Credit Analysis: THQ Distribution Ltd

1. Credit Opinion: APPROVE

Rationale: THQ Distribution Ltd demonstrates a compelling credit profile characterised by exceptional balance sheet growth, conservative leverage, and robust liquidity. Net assets have grown from £1,089 (2017) to £3.86M (2024), representing a near-3,500-fold increase over seven years. The current ratio stands at a healthy 3.36x, total liabilities represent only 29% of total assets, and cash has nearly doubled year-on-year. The company operates in a stable sector (motor vehicle parts retail) and has a 12-year trading history. The primary credit considerations centre on inventory concentration and the absence of P&L visibility under the small companies regime, but these are outweighed by the demonstrable financial strength and growth trajectory.

2. Financial Strength

Balance Sheet Summary (2024): | Item | £ | % of Total Assets | |------|---|-------------------| | Fixed Assets | 627,883 | 11.5% | | Stocks | 3,055,677 | 55.8% | | Debtors | 1,208,764 | 22.1% | | Cash | 582,519 | 10.6% | | Total Assets | 5,474,843 | 100% | | Current Liabilities | (1,441,298) | | | Long-term Creditors | (112,023) | | | Provisions | (56,549) | | | Net Assets | 3,864,973 | |

Key Observations:

• Extraordinary Growth Trajectory: Net assets have grown consistently every year since 2017, from £1,089 to £3.86M. This represents sustained organic growth and reinvestment into the business. Year-on-year net asset growth: 2024 (+12.8%), 2023 (+21.8%), 2022 (+22.7%), 2021 (+109%), 2020 (+317%).

• Conservative Leverage: Total liabilities of £1.61M against total assets of £5.47M yields a debt-to-asset ratio of 29.4%. This is well within acceptable parameters for a distribution business. The long-term creditor element is modest at £112k.

• Asset Quality Consideration: The balance sheet is heavily weighted toward inventory (£3.06M, representing 55.8% of total assets). While this is typical for a parts distribution business, it represents a concentration risk – obsolescence, markdown, or slow-moving stock could materially impact asset realisability. The company's accounting policy states stocks are valued at the lower of cost and net realisable value "after making due allowance for obsolete and slow moving items," which provides some comfort.

• Property Ownership: The balance sheet shows land and buildings at £585,873 (net book value after depreciation), suggesting the company owns its premises or holds significant property assets, which provides additional security.

• Share Capital: Minimal at £100, indicating growth has been funded through retained profits rather than equity injections – a positive indicator of genuine profitability.

3. Cash Flow Assessment

Working Capital Position: | Metric | 2024 £ | 2023 £ | Change | |--------|--------|--------|--------| | Current Assets | 4,846,960 | 4,267,212 | +13.6% | | Current Liabilities | 1,441,298 | 1,262,268 | +14.2% | | Net Current Assets | 3,405,662 | 3,004,944 | +13.3% | | Current Ratio | 3.36x | 3.38x | Stable | | Quick Ratio (ex-stock) | 1.24x | 1.23x | Stable |

Liquidity Analysis:

• Current Ratio of 3.36x is strong and has been maintained consistently. The business can comfortably cover short-term obligations 3.4 times over.

• Quick Ratio of 1.24x (excluding £3.06M inventory) demonstrates that even without liquidating stock, the company can meet current liabilities from cash and debtors alone.

• Cash Improvement: Cash has increased from £317k (2023) to £583k (2024), an 83.7% improvement. This suggests strong cash generation, though the 2022 cash position was notably low at £110k, coinciding with significant asset growth that year.

• Debtor Levels: At £1.21M, debtors represent approximately 22% of total assets. Without turnover figures, it is difficult to assess debtor days, but this warrants monitoring for collection efficiency.

• Creditor Management: Current liabilities have increased by 14.2% YoY, broadly in line with current asset growth (13.6%), suggesting the business is scaling proportionally.

• Hire Purchase Commitments: The accounts disclose £323k of plant and machinery held under hire purchase contracts (cost basis), with additions of £87.5k in the year. This represents a moderate but manageable capital expenditure financing arrangement.

4. Monitoring Points

Key Monitoring Recommendations:

1. Inventory Quality: Request regular stock aging reports. With £3.06M in inventory, obsolescence risk is the single largest balance sheet concern. Assess provision adequacy and stock turn ratios.

2. Turnover & Margin Visibility: The small companies regime means no P&L is filed. Request management accounts to verify trading profitability, gross margins, and EBITDA/debt service coverage.

3. Group Structure: Strettons Holdings Limited holds >75% control. Understand the broader group structure, any intercompany balances, and whether group guarantees are available or necessary.

4. Director Changes: Christopher John Butterworth resigned as director in March 2026 (post year-end). Clarify the rationale and whether this impacts operational continuity or shareholding stability.

5. Growth Sustainability: The business has expanded rapidly (net assets grew from £1.1M in 2020 to £3.86M in 2024). Monitor whether growth is straining working capital or operational capacity.

6. Sector Risk: Motor vehicle parts retail faces supply chain disruption risk and potential demand shifts from EV transition. Assess the company's supplier relationships and product mix adaptation.

7. Debtor Quality: At £1.21M, debtors are significant. Obtain an aged debtor analysis to assess collectibility and concentration risk.