Drinks distributor and Bargain Booze franchise owner Conviviality’s (CVR:AIM) half year results have failed to impress as it needs a materially stronger second half performance to deliver full year profit growth.
Investors are not impressed by Conviviality securing new large customers as this has come at the cost of a 0.3% hit to gross margins which are now running at 12.5%. Adjusted pre-tax profit for the six-month period to 29 October 2017 is down 1.9% to £15.1m.
Companies which require a better second half to achieve guidance are often prone to profit warnings.
If Conviviality wants to achieve consensus forecasts of approximately £53m in pre-tax profit by the end of April, it will have to deliver £37.8m in the second six months of the year. This represents a 28%-72% split between the first and second half.
To place this in context, in the April 2017 financial year the split was 34% to 66%.
The market’s reaction implies a lack of confidence in the company making up the difference in the remainder of its financial year as the shares fall 11% to 318.5p.
BETTER LONG-TERM PICTURE
Shore Capital analyst Phil Carroll argues Conviviality can still meet full year expectations through a ‘stronger than expected top line performance.’
He says management has a good record on guidance and would not be ‘overly confident’ without visibility concerning the impact of improved efficiencies. Carroll increased his pre-tax profit forecast to £53.3m.
The analyst also hikes earnings per share expectations from 26.1p to 27.3p in 2019.
For 2020, EPS forecasts have been raised from 23.3p to 28.5p.
