Profit warnings mount, but some may hide buying opportunities

Bad news in projected results is not always bad news for investors. Are there any opportunities lurking among the latest batch of profit warnings?

Article updated: 16 October 2018 8:00am Author: Michael Baxter

I have been busy shaking a stick at profit warnings. Alas, my ability to shake it was insufficient. There have simply been more profit warnings than you can shake a stick at.

Reasons for the warnings vary. The weather comes top, and that may mean opportunity as, according to exclusive research, I can reveal, based on a study I carried out, that the weather tends to vary.

The companies

Fashion and retail

(Editor's note: we do not have research pages for foreign shares, so not all companies are linked to below - but you can still trade in them through us)

ASOS: back in July it said that sales are now expected to be at the lower end of projections, but market expectations are high.

Thought: this company is swimming with the online tide.

Quiz: The company anticipates that EBITDA in its first half will be £1.5 million lower than its previous expectations, and less than £5.5 million. It blames lower than expected sales through third-party online partners. To a lessser extent it has been affected by the woes at House of Fraser.

Thought: it has been hit by applying the right strategy. Better times should follow.

Superdry: Expected profits to be £10 million lower than previously projected. It blamed the hot weather. Chief executive Euan Sutherland said: “Superdry is a strong brand with significant growth opportunities, backed by robust operational capabilities, but we are not immune to the challenges presented by this extraordinary period of unseasonably hot weather.”

Thought: the weather changes, but then so does fashion. This company may be too plugged into a certain type of fashion. Would be shareholders may think it’s a bargain, but shoppers can never find a bargain in its stores. I am not sure this is a strength, long-run.

Bonmarché: A women’s fashion retailer which targets the over-50s. It now expects a full profit for the year of around £5.5 million versus £8 million the year before. It blamed falling footfall on UK high streets, and the weather.

Thought: Its target audience is vast, and it can tap much deeper into it.

Zalando: Berlin-based online retailer. Revenue growth projected at the lower end of the 20-25 per cent range it had previously projected. Rubin Ritter, Co-CEO, said: “While current trading in the third quarter clearly does not reflect our ambition, our growth story remains intact. Despite the challenging market environment, we continue to invest in growth and remain committed to our target of doubling the business by 2020.”

Thought: Business model seems to fit the digital age, but valuation may reflect this too.

The rest

BMW: operating margin in the automotive division is expected to be one percentage point lower than previously projected. It blames new stricter EU emissions tests for cars and global trade tensions. Thought: BMW’s long-term fate depends on how it embraces electric cars, AI and the move towards autonomous cars. The factors behind the warning had nothing to do with these key issues.

Amino Technologies: Multinational media and technology solutions company. Profits are expected to be less than expected. It blames intensification of external macroeconomic headwinds, US trade policy and higher-than-expected component prices and confusion in emerging markets.

Thought: Watch the share price; the reasons listed do not justify extreme falls.

Ryanair: Profits for the year will be 12 per cent lower than expected. Its boss, that nice Mr O’Leary said: "While we successfully managed five strikes by 25 per cent of our Irish pilots this summer, two recent co-ordinated strikes by cabin crew and pilots across five EU countries has affected passenger numbers (through flight cancellations), close in bookings and yields (as we re-accommodate disrupted passengers), and forward air fares into Q3. While we regret these disruptions, we have on both strike days operated over 90 per cent of our schedule. However, customer confidence, forward bookings and Q3 fares has been affected, most notably over the October school mid-terms and Christmas, in those five countries where unnecessary strikes have been repeated."

Thought: Being nice might be catching up with the company!

Royal Mail: Productivity performance below plan. 2018-19 cost avoidance target lowered from £230 million to £100 million. Now expects group adjusted operating profit before transformation costs to be in the range of £500 million to £550 million on a 52 week basis. Thought: Shares fell sharply, have they fallen enough to make them attractive?

Moss Bros: Blamed hot summer weather and the World Cup for a year loss.

Thought: England’s performance in the World Cup was a surprise as was the weather. Better may follow.

Thomas Cook: For a change. Blamed warm weather for fall in last minute bookings, full year profits expected to be 280 million, from £323 million previously estimated. Chief Financial Officer is leaving.

Thought: Is the business model sustainable in the long run?

ConvaTec: UK maker of Colostomy bags and catheters. It warned of lower growth and its CEO resigned. Shares are 30 per cent below IPO price. But the fall in the share price may have been extreme. Sales growth is now expected to be zero, versus previous projection of three per cent. Change in inventory policy at a client explained part of this.

Thought: Colostomy bags and catheters are not going out of fashion and much of the problem seems to be transitory.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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