7th Nov 2014 09:54
LONDON (Alliance News) - Brammer shares plunged on Friday after the company slashed its profit guidance for the full year on the back of a weaker-than-expected trading in the UK and a deteriorating European market.
The industrial maintenance, repair and overhaul products supplier saw its shares fall 12% to 295.25 pence, the worst performer in the FTSE All Share index, after it said its underlying pretax profit for the year will be around GBP35 million to GBP36 million, below previous expectations.
It blamed the cut to its profit guidance on weaker trading in the UK, deteriorating market conditions in Europe and the impact of the strength of sterling.
The company said it has been hit by a reduced spend in its UK operations by a small number of major customers. In the four months to the end of October, its sales per working day in the UK dropped 3.1%. The drop was driven by six large customers, who between them provided annual revenue to Brammer of GBP58 million last year, cutting around GBP14 million from their spend. This hit UK sales by 5%, subsequently damaging gross and trading profit for the division.
At constant currency rates, total sales growth for the group was 15.5%, with sales up nearly 15% in both France and Spain and by nearly 10% in Germany.
Brammer said key account sales rose 7.9% during the four month period, in spite of the problems in the UK. It won a further nine key accounts in the period, bringing it total for the year to date to 13, with total potential incremental revenue from the contracts at more than EUR50 million per year. Brammer's key accounts represent 53% of group revenue.
The group also said its vending machine business is gaining traction, with the annualised run rate of revenue to customers with a vending machine based on September and October sales at EUR27 million, up 50% on last year. Brammer gets a cut of its customers' vending machine revenue. It said its investment in the vending business, currently at over GBP6 million, will have an impact on short-term profitability.
It also said the integration of Lonne Holding AS, which it acquired in a GBP19 million deal in January, was "satisfactory".
Despite the share price plunge the company suffered on the update, analysts at Jefferies jumped to Brammer's defence, suggesting there remain a number of positives in play for the company despite the gloomy trading update.
The new profit guidance is materially below the market consensus of GBP39 million, the broker said, and it expects double-digit percentage downgrades from the company in its 2014, 2015 and 2016 full years.
But though Jefferies acknowledged a profit guidance downgrade is "unhelpful and seldom taken well", there are a number of positive developments which should be noted, though they are likely to be overshadowed.
Jefferies said it was expecting a challenging update from Brammer, but said what it got was "softer than we were fearing". Brammer continues to outperform the underlying market, the broker said, adding that acquisitions and investment in growth are the right thing to do, though it said what it needed in its view is the establishment of "a number of core, underlying markets".
Jefferies has a Hold recommendation on the stock with a 370 pence price target.
By Sam Unsted; [email protected]; @SamUAtAlliance
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