- First-half revenue down 26 per cent
- Full-year revenue and profit guidance maintained
- Second-half revenue expected to rise by almost half to £20mn
Birmingham-based Tandem (TND:200p), a designer, developer, distributor and retailer of sports, leisure and mobility equipment, has reiterated full-year profit guidance at its annual meeting despite reporting 26 per cent lower revenue in the first half of 2023.
As highlighted at the annual results (‘This recovery play has fewer and fewer headwinds, 27 March 2023'), cautious buying behaviour among national retailers, coupled with a transition from Free On Board (FOB) to direct delivery purchases by them, accentuated the first-half sales decline as customer overstocking is cleared, thus shifting more sales to the second half. The upside is better pricing for Tandem given that national retailers can negotiate larger discounts on free on board (FOB) sales (FOB defines the point at which a buyer or seller becomes liable for goods being transported).
Tandem’s toys, leisure and sports division was impacted most, the segment accounting for 55 per cent of group revenue in 2022. However, management is “cautiously optimistic”, highlighting upcoming blockbuster movie releases that should have a positive impact on sales of its popular licence brands (Barbie, Paw Patrol and Spider-Man).
The directors also point out that, although bicycles sales are down 20 per cent year on year, second-quarter sales are “significantly ahead”, buoyed by new product releases and market share gains. E-mobility is another bright spot. It accounted for 14 per cent of group revenue in 2022 and delivered 51 per cent sales growth in the first half of 2023 as electric bike sales more than trebled. This not only reflects growing consumer interest in electric-powered transportation options, but the positive impact of Tandem’s new Electric Life shop and website on raising awareness and product accessibility amongst bike dealers and national retailers.
The poor weather conditions in the first quarter proved a headwind for Tandem’s home and garden division, so it’s reassuring to note that the rate of sales decline slowed “significantly in the second quarter”. The launch of new products, coupled with the fine summer weather, should help bolster sales of outdoor equipment, even factoring in softer consumer spending on non-essential items during a cost of living crisis. Self-help measures are also likely to drive second-half sales higher, too. Initiatives include a focus on winning new national and independent accounts, and promoting products from other parts of the business on its Jack Stonehouse website (home and gardens) to capture new customers.
Tandem’s board maintains guidance
The board is maintaining full-year guidance in line with house broker Cenkos Securities’ forecasts, which point to revenue rising from £26.7mn to £30mn and adjusted operating profit increasing from £1.3mn to £1.6mn. True, underlying pre-tax profit is likely to be flat at £1.2mn, reflecting a higher interest charge and a doubling of net debt to £3.4mn, as expected, implying a comfortable 13 per cent gearing level.
Priced on 11.5 times likely bottom-of-the-cycle earnings per share (EPS) estimates of 17.2p, rated 59 per cent below book value of 490p and offering a 5 per cent dividend yield, Tandem’s shares rate a recovery buy.
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