Having immediately moved our buy tip on drinks wholesaler Conviviality (CVR) to sell at 103p with an online update in light of last week’s shock profit warning (issued between the time of writing our tip and its publication), we feel justified in our abrupt about-turn by a further update from the group and suspension of the shares at 101.5p.
The initial warning revealed margin pressure would continue for the foreseeable future. This was followed less than a week later by news that the group has unearthed a whopping £30m tax bill it had not previously accounted for. Worse still, the taxman expects to be paid by 29 March. This has created a short-term funding issue, and could further damage the already-downgraded adjusted cash profit guidance for this year (£55.3m-£56.4m). Management says it is still "in compliance" with its banking covenants, with the next covenant test date due at the end of April.
