Berenberg downgrades Hotel Chocolat to 'hold'

Berenberg downgraded British chocolatier Hotel Chocolat to 'hold' from 'buy' and cut the price target to 340p from 380p pointing to limited scope for substantial upgrades in the near term and a high multiple.

The bank upgraded the stock back in October last year as it reckoned significant upgrades could be delivered through a faster-than-anticipated rollout, growth from the new wholesale relationships and improvements to the subscription business. It also felt that higher revenue growth could drive margin expansion despite some cost headwinds.

It argued on Friday that while the company made good progress in the first half of this year, with revenue and EBITDA growth of 15%, this was in line with expectations.

"While we continue to believe the company has considerable expansion potential, we see limited scope for substantial upgrades in the near term. Thus, given the stock is on a high multiple, we downgrade to hold," it said.

Berenberg noted that the peer group is trading on 35x 2018 price-to-earnings versus Hotel Chocolat on 29x FY June 2019 estimate price-to-earnings.

"We feel that Hotel Chocolat deserves to trade at a slight discount to account for its lower-than-average EBIT margin and average EPS growth."

On Thursday, the group reported a 15% jump in revenue and underlying earnings to £71.7m and £15.8m, respectively, while pre-tax profit was also up 15%, to £10.1m thanks to strong sales growth across retail, digital and corporate channels.

At 1550 GMT, the shares were up 0.8% to 308.50p.