Financial Times -October 8, 2021 5:00 pm by Investors’ Chronicle reporters9 Oct 2021 19:32
BUY: Hotel Chocolat (HOTC)
The group’s digital model and at-home product sales growth delivers robust results, despite high-street stores being closed for half the year, writes Christopher Akers.
Given the number of companies highlighting the deleterious impact of supply chain issues and inflationary pressures, it was almost shocking that Hotel Chocolat did not announce such problems in its full-year results to June 27. While the Aim-listed premium chocolatier is certainly not immune to problems at home, its UK-focused production base means it is not as exposed to international freight and haulage problems as competitors. Revenue soared and the bottom line outperformed market expectations as the group returned to profit after last year’s pandemic-driven loss.
Revenue was up by a fifth despite the group’s high street stores being closed for six months of the year due to Covid-19 restrictions, including for the vital trading days of Christmas and Valentine’s Day. The group’s “digital-first” strategy redressed the decline in store sales, with 70 per cent of revenues for the year stemming from digital sources. Sales of at-home products, such as the Velvetiser hot chocolate maker, grew strongly with customers responding well to subscription models. In the group’s US market sales were up 36 per cent and 16 new stores were opened by its joint venture in Japan.
While the group posted robust profits, the dividend — last paid in 2019 – was not reinstated. This will disappoint income-focused investors, though management noted the decision was due to the “opportunities to invest for future growth” taken in the year. The £19.3m allocated to capital investment included funding the expansion of UK operating capacity, which is forecast to significantly increase production limits and support £250m of sales per year. Further investment is planned, with a £40m July share placement shoring up the balance sheet after the year-end.
The group’s continued focus on sustainability means that ESG-conscious investors can take a serious look at the stock. The new Gentle Farming Charter aims for cacao suppliers to “earn a sustainable living income in return for farming in a climate-smart, sustainable way”. And 100 per cent of packaging is expected to be “widely recyclable” by the end of 2022, and a first sustainability report is due to be published in this financial year to provide stakeholders with additional disclosures.
Peel Hunt expects a forward price/earnings ratio of 21 times forecast earnings for full-year 2023, which represents good value given current and expected growth. The broker forecasts adjusted profit before tax to almost triple to £28.9m by full-year 2023. With a sturdy digital strategy and reopened stores helping drive growth further, we think the results warrant taking the plunge.
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