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Huntsworth disappoints

Half-year results fell short of the high expectations, but we are confident that sentiment will be reinvigorated in the second half
July 24, 2018

Bulls are likely to point to overinflated expectations as the reason for Huntsworth’s (HNT) 9 per cent share price fall off the back of its half-year results. And it’s true, continued share price growth becomes hard when people expect nothing but the best. But even the most sceptical of investors are likely to have been disappointed by a 3.4 per cent decline in like-for-like revenues in the first six months of the year, dragged down by a 9 per cent drop in revenues from the core marketing division.

IC TIP: Buy at 120p

It’s also hard to justify flat adjusted operating margins considering management has been prioritising more profitable business. True, central costs have been adversely affected by foreign exchange movements, but the disposal of lossmaking contracts in the turbulent communications division is yet to do much good – both revenues and margins were down in these numbers.

That said, Huntsworth does appear to be a victim of short-term financial reporting. The marketing business was always going to struggle to replicate the 30 per cent revenue growth reported in the first half of 2017 and chief financial officer Neil Jones has reassured that strong growth in the second half will flatten out revenues. On a reported basis, sales are likely to be boosted significantly by the recent acquisition of Giant. Indeed, broker Numis raised its 2018 pre-tax profit and EPS guidance to £29m and 6.9p respectively to account for the addition (from £24.4m and 5.8p in 2017).

HUNTSWORTH (HNT)   
ORD PRICE:120pMARKET VALUE:£397m
TOUCH:120-122p12-MONTH HIGH:140pLOW: 61p
DIVIDEND YIELD:1.8%PE RATIO:22
NET ASSET VALUE:48.8p*NET DEBT:24%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201794.29.21.60.55
201810210.32.30.70
% change+8+13+44+27
Ex-div:27 Sep   
Payment:6 Nov   
*Includes intangible assets of £185m, or 56p a share