- Orders impacted by Royal Mail strikes
- Greetings cards platform downgrades sales forecast
- Moonpig insists growth opportunity ‘remains vast’
Shares in Moonpig (MOON) were the FTSE 250’s biggest fallers, plunging 17.6% to 124.6p as the online greetings cards-to-gifts platform reported a drop in first half profits and pruned its full year sales forecast after September and October orders were impacted by Royal Mail strikes.
The online greetings cards leader in the UK and Holland, Moonpig likes to present itself as a technology business, but it clearly remains reliant on the local postie to get products through people’s letterboxes.
On the positive side, having scaled back spending, Moonpig reiterated its full year expectations for adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), demonstrating a degree of resilience in the business model.
SALES GROWTH DOWNGRADE
Moonpig, which offers online greetings cards as well as personalised physical greetings cards, now expects revenue for the year to April 2023 to be around £320 million.
That is a downgrade from previous guidance of £350 million, though still above expectations at the time of the initial public offering (IPO) in 2021.
The company conceded trading conditions have become ‘progressively more challenging’ through October and November due to the impact from Royal Mail strikes and trading down in gifting as the cost-of-living crisis squeezed consumer spending.
Results for the first half ended 31 October 2022 revealed flat revenue of £142.8 million as Moonpig lapped a demanding, lockdown-inflated prior year comparative.
Reported pre-tax profit halved to £9.1 million after a jump in finance costs following the acquisition of Red Letter Days owner Buyagift and after the amortisation of tech platform investments.
IDEALLY POSITIONED?
CEO Nickyl Raithatha insisted that as the ‘clear online leader in greetings cards’, Moonpig is ‘positioned to benefit as the market continues the long-term structural shift to online.
‘Our resilient business model offers a powerful and unique combination of leading market positions, strong customer retention, high profitability and robust cash generation, giving us flexibility to manage through the economic cycle. As a result, our expectations for profit for the current financial year remain unchanged.’
EXPERT VIEWS
J.P.Morgan Cazenove commented: ‘With Moonpig already having called out some trading down in gifting in September, the shares have underperformed e-commerce peers in recent months, and hence we think a change in top line guidance was already widely anticipated, and captured in the current price.
‘Nevertheless, whilst we continue to like the long term story (and see the valuation as undemanding), with earnings momentum currently negative, we expect the shares to tread water in the near term.’
AJ Bell investment director Russ Mould said: ‘Some people have clearly been put off ordering cards through Moonpig thanks to the postal strikes, judging by the drop in volumes in September and October. The danger is that the same trend will continue in the crucial November and December period as the prospect of more industrial action looms.’
Mould continued: ‘What is perhaps most concerning is how rapidly the situation has deteriorated given trading was reported to be in line with expectations as recently as September. While revenue guidance has been trimmed, the company is sticking with its expectations for adjusted earnings having scaled back spending. This isn’t a long-term solution though.
‘Greetings cards sales have demonstrated resilience in previous recessions but the risk of further disruption will be keeping Moonpig management up at night.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
