Stock Spirits drips lower after Friday warning and Nomura downgrade

Shares in Stock Spirits continued to leak lower on Monday after Friday's profit warning, with Nomura adding to the negative sentiment by downgrading the company and severely watering down its target price.

Stock Spirits put out a trading statement just hours before the stock market closed for the weekend, lowering its targets for the full year after weak trading in recent months in its key market of Poland, where it lost ground due to aggressive pricing from competitors and "irregular buying patterns" by customers.

The company now expects full year earnings before interest, tax, depreciation and amortisation (EBITDA) to be €50-54m before any currency impact, having in August pencilled in a €60-68m range.

Nomura noted that this warning reflected both changes in channel mix, with a decline in traditional trade where it is strong, together with renewed competitive activity.

The Japanese bank has now reduced its earnings per share (EPS) estimate by 26% to €10.6 from €14.4 on the assumption that EBITDA will be at the bottom of the new range.

With minimal visibility on trading into the new financial year and beyond, the target price has been slashed to 135p from 220p and the rating cut to 'neutral' rating from its previous 'buy'.

"The company has traditionally been strong in the traditional trade in Poland; however, there appears to be a seismic shift towards modern trade where the company has been less strong," Nomura said.

Nomura noted that a key competitor in Poland, the privately owned Roust, appears to be regaining share in Poland after some stabilisation of the third quarter.

"In addition, there is increased activity from the number-three name, Marie Brizard, which is also under new management."

Stock Spirits forecast p/e rating of 23.3 puts it at the lower end of the beverages range but, with the M&A story likely on hold, "this could open the door for more focus on capital returns in the future".