- CMO warns of slowing growth and downgrades earnings guidance
- Broker more than halves 2022 pre-tax profit forecast
- Warning leaves shares 60% below issue price
Online building materials retailer CMO (CMO:AIM) has warned of slowing growth amid weakening home improvement and DIY spend as well as margins pressure caused by higher freight and product purchasing costs.
The disappointing news sent shares in CMO down 34.2% to 51p, more than 60% below July 2021’s 132p IPO (initial public offering) price.
The UK’s biggest online-only building materials seller said trading has become more challenging since Easter, with growth slowing in the second quarter compared to the first.
Accordingly, it now taken a ‘more cautious near-term outlook’ and expects to see ‘less strong growth in the short term’.
SIGNIFICANT DOWNGRADES
Seeking to disrupt the traditional building materials market, CMO warned revenue for the year to December 2022 is now expected to be no lower than £86 million.
While that is up from 2021’s £76.3 million, it represents a significant miss versus the £95.5 million Liberum Capital was looking for.
Adjusted EBITDA for the year is expected to be flat on last year’s £3.7 million, well below the broker’s previous £5.6 million forecast.
Over the 27 weeks to 30 June 2022, CMO’s one-year like-for-like sales growth slowed to a meagre 2%, admittedly as the company lapped particularly tough comparatives, although two-year like-for-like sales growth was strong at 29%.
CEO Dean Murray highlighted ‘another good period of strong sales growth during a particularly volatile trading period’ for his charge.
However, he added: ‘Unsurprisingly, the macro-economic picture and the geo-political situation which has exacerbated supply side challenges have had a short term impact on profitability.
‘Despite this, we have moved with agility to address these challenges and remain confident in the outlook for the group. We are focused on managing the operational headwinds, already seeing positive signs as we enter H2, whilst continuing to deliver our strategic plan to enable future growth.’
THE LIBERUM VIEW
Taking its cue from management’s revised guidance, Liberum Capital cut its 2022 pre-tax profit by 52% to £1.91 million and slashed its target price from 180p to 130p.
‘We still see upside as CMO remains cash generative, has cash on the balance sheet and a good pipeline of opportunities,’ said the broker.
‘The immaturity of building materials online should continue to enable premium growth in CMO, and its unique business model is proving hard to replicate.’
Liberum also stressed that CMO ‘remains cash generative thanks to its drop-ship business model - it carries only limited inventory, is paid promptly by customers and settles with suppliers on normal commercial terms.
‘CMO is likely to continue to grow by widening the range of products offered to trades and homeowners, through organic and inorganic expansion. The group has the longest pipeline in its history.’
