Jefferies downgrades SIG on profit warning, CEO departure

Jefferies downgraded SIG to ‘hold’ from ‘buy’ and slashed the price target to 90p from 140p after the company issued a profit warning and announced the surprise departure of its chief executive officer Stuart Mitchell.

SIG said on Friday that it now expects underlying pre-tax profit for the year ending 31 December to be between £75m and £80m, which is down from £87.4m last year and below consensus estimates of £90m. It attributed the expected decline in part to weaker-than-expected trading conditions since the EU referendum.

Jefferies said the new guidance range is 12% to 18% below its previous estimate and cut its full-year 2016 pre-tax profit estimate by 18% to £75.3m.

“With the announcement of a change of CEO and CFO in the space of one month, uncertainty around the start date of the incoming CFO and the search for a new CEO starting today, there is no current guidance for FY2017. We have therefore cut our FY2017 estimates to match the existing board's guidance for FY2016, a cut of 26% from £101.7m to £76m.”

Jefferies said that in the face of such uncertainty, it can no longer recommend that investors buy the shares.

“Whether wishing to buy or sell shares, we advise waiting until the dust has settled in order to more accurately appraise the future cashflows on which the valuation is ultimately based.”

At 1010 GMT, SIG shares were down 19.5% to 93.17p.