- Annual revenue forecast cut 10 per cent to £32.2mn
- Cash profit estimate reduced from £4.4mn to £3.2mn
- Dividend suspended, but annual pay-out expected
Plastic products maker and designer Coral Products (CRU: 12p) has issued a profit warning, a little over a month after maintaining earnings guidance in first half results.
Although the company has been winning new customers and maintaining market share, it has seen a lower level of orders. The news prompted house broker Cavendish to rein back its second half revenue estimate from £18.1mn to £15mn and now expects the company to report 9 per cent lower revenue of £32.2mn in the 12 months to 30 April 2024.
Analysts also slashed their annual cash profit forecast from £4.4mn to £3.2mn, down from £3.9mn in the previous year, which feeds through to a steep reduction in annual pre-tax profit estimates from £1.9mn to £0.6mn. On this basis, expect earnings per share (EPS) of 1.1p.
Furthermore, although the company owns significant freehold assets and has modest balance sheet leverage, the board is taking a prudent approach and suspending the 0.5p a share interim dividend. The directors still expect to declare a full-year dividend, albeit Cavendish’s 0.5p a share revised estimate is below the 1.1p a share pay-out in 2023.
The positive news is that the dip in orders is expected to be short-lived and guidance from management is that the pipeline should start to recover in the coming weeks. Also, the benefits of ongoing investment in machinery and new products have yet to be fully realised with sales from these initiatives expected to start to come onstream in the next three months. The board has also identified material cost savings by combining workspaces and delivering central services.
Considering cost savings, synergy benefits and a recovery in sales, Cavendish expects pre-tax profit to double to £1.2mn on revenue of £34.9mn in the 2024-25 financial year. On this basis, expect EPS to rise two-thirds to 1.7p. This implies the shares are rated on a forward price/earnings (PE) ratio of 11.4 (2024) and 7.3 (2025) and offer a 4.1 per cent prospective dividend yield.
So, having initiated coverage at 14.75p (‘This deep value small-cap bargain could pack a punch’, 6 March 2023), and reiterated that advice at 15p (‘A plastic products maker with a 7% yield’, 9 January 2024), the earnings recovery potential makes the shares a hold.
