Hotel Chocolat still sweet

Fifteen new openings over the course of the past year have contributed around half of the total sales growth reported, leaving new product launches and online growth – digital customers have risen by 200,000 annually – responsible for the rest. This suggests the company is well balanced between underlying growth and store openings – with neither doing the other harm. True, the company is having to deal with around £1m-worth of exchange-rate-related expenses this year, but a tight eye on cost control across the rest of the business means brokers expect any decline in the profitability of sales to be marginal. As such, management remains confident that pre-tax profits will be reported in line with market expectations, with broker Liberum expecting £12.4m. What's more, the group's decision to plough ahead with five openings during the quieter second half of its financial year means the broker believes the group would have comfortably beaten profit expectations had it opted for a seasonal pause in its expansion.

The balance sheet has also received a timely boost now that the group has successfully repaid £6.4m-worth of Chocolate Bonds in June, which paid interest in chocolate and gift cards. Removing the interest expense (reported in pound sterling rather than pound lbs in the accounts) led to modest upgrades to earnings per share (EPS) expectations for 2019 and 2020, and also underlined management's confidence in its ability to finance expansion with cash generation.

With the Chocolate Bonds now off the balance sheet, Liberum reckons Hotel Chocolat could generate up to £51m in free cash flow over the next five years, which could accelerate certain growth plans, with a particular focus on international markets, automation and infrastructure developments. This would underpin the long-term growth potential of the business, while increasing efficiency to support margins in the longer term. It could even, in Liberum’s view, accelerate dividend payments, too, given the comfortable dividend cover.