6th Apr 2022 11:15
(Alliance News) - It may take a while for investors to warm up to Avon Protection PLC again following Wednesday's profit warning, investment bank Jefferies said.
Shares in Avon Protection were down 22% at 1,027.33 pence in London on Wednesday and have fallen 70% over the past 12 months. The stock has slumped roughly 80% from an all-time high of 4,650p registered in December 2020.
The Wiltshire, England-based personal protection company earlier on Wednesday said profit in its year ending September 30 will come in lower than forecast, after half-year earnings were hit by various factors.
Avon said a weaker-than-expect sales mix in its half year ended March 31, as well as additional costs stemming from supply chain issues and inefficiencies in its processes have squeezed its margin. The earnings before interest, tax, depreciation and amortisation margin is expected around 10% for the period. It expects profit and margin to improve over its second half, but does not expect to make up the deficit from the first half.
This was despite revenue for the period being in line with expectations, and ahead overall by around 4% year-on-year, or broadly flat on an organic basis.
More positively, Avon said customer enquires are "robust", with a notable increase since the outbreak of war in Ukraine.
Broker Jefferies said: "This is clearly a disappointing update, and although we believe the market recognised there was some risk to consensus forecasts, the extent of the likely downgrades will come as a surprise to investors."
Jefferies said it would expect the market to cut Ebitda forecasts for the current financial year by around 30% in the wake of Wednesday's update.
This could be higher if investors also turn more cautious on the second half, the bank added.
Jefferies analysts are more upbeat on the 2023 financial year, believing it is unlikely to see the same scale of current operational challenges and that the firm should benefit from an improved demand backdrop. However, investors are likely to take a conservative stance on next year and make "high single-digits/low double-digits" earnings per share downgrades.
"While the more positive commentary on FY23F is welcomed, and we are increasingly positive over the group's longer-term outlook, we expect investors will likely need more comfort in the group's ability to deliver on expectations before giving the group any benefit of the doubt," said Jefferies.
The latest profit warning comes amid a tough period for the firm. Avon dropped out of the FTSE 250 in September 2021 following an August guidance cut due to delayed deliveries and extended lead times.
It then in October lowered its margin guidance further and in November started a review of its body armour business, deciding the month after to wind down the business.
By Lucy Heming; lucyheming@alliancenews.com and Elizabeth Winter; elizabethwinter@alliancenews.com
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