H2 expected to be "materially below its previous expectations"
Companies: Kin and Carta Plc
There was more bad news from St Ives this morning in its pre-close Trading Update ahead of its H1 results later this month. The main source of bad news is the Marketing Activation division but there has also been revenue and margin impact in the Strategic Marketing division after last year's project cancellations and deferrals.
Over the first half of the year, the Group expects the Marketing Activation division's revenue to decline by 2%, compared to a decline of 7% for the full previous year. This is flagged as the positive news, but in addition to this, the operating margin has been squeezed.
Management flag the increased level of competition in the grocery sector, which is the Group's largest single market:
"Trading conditions within our Marketing Activation segment continue to be very challenging due in large part to the ongoing pressures within the grocery retail sector, the segment's largest single market."
The right noises are being made however, with Management looking to diversify further away from the grocery sector, and also implement "cost reduction measures". These changes, if successful, will take time to bear fruit, and while the top-line is reducing at a slower rate than last year, it is still reducing.
It does not appear to us that there is much to get excited by this share for the time being, at least until there is tangible evidence of a reversal in revenues trend and progress with diversification.
The overall outlook given my Management is pretty stark:
"The Board now anticipates that the out-turn for the full financial year will be materially below its previous expectations with the majority of the shortfall due to the pressures within the Marketing Activation segment."
St Ives has had a rocky 12 months with a profit warning back in April 2016 that eventually knocked 69% off the share price which bottomed out at 70p in July. It later recovered well, thanks to a positive update in August which now looks prematurely optimistic. Of the Strategic Marketing division, Management then said:
"the issues we encountered in the final quarter were short term and we are encouraged with the progress that is being made"
The positive but admittedly cautious stance continued in October's FY report with respect to the troubled Marketing Activation division, in which a list of client wins highlighted the diversification was making progress. Today's announcement has therefore disappointed the market, as can be seen by the 36% drop in the shares, which are now only 10p off their previous lows.
Broker N+1 Singer published a note this morning where it cut its PBT forecast by £7m to £25m and lowered its rating from BUY to HOLD:
"The Company is also taking this opportunity to revise its guidance for Strategic Marketing as its recovery pace is not running at the planned target rate. "