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Conviviality issues shock profit warning

The beverage company issues a late in the day profit warning
March 9, 2018

We always try to get as much reassurance as possible prior to tipping a share but there are inevitably still surprises waiting ahead. In the unfortunate case of our buy tip this week for drinks business Conviviality (CVR) the surprise was a horrid one – a profit warning – and it came after writing the tip and just prior to publication. The warning, issued at 3pm on Thursday 8 March, came as a particular blow as we felt management had given clear reassurance that first-half margin weakness would be rectified as recently as four weeks ago. We weren’t alone in being convinced that Conviviality’s problems were temporary with a number of brokers also reiterating their positive stances over recent weeks.

IC TIP: Sell at 103p

The group says margins in its Direct business have softened during January and February, and are expected to remain weak for the rest of the year. This change has resulted in a “material error” in the financial forecasts for the Conviviality Direct business, which means the cash profits for the current year will be dented by £5.2m.