Berenberg lowers target price on Hilton Food

Berenberg highlighted that Hilton Food's trading update on Tuesday indicated that its seafood business, which makes up roughly 10% of revenues, was set to deliver "a softer performance than initially expected".

The German bank noted that Hilton's seafood division did not have the same cost pass-through mechanisms as its core processing business, and slower progress renegotiating pricing with customers had now caused it to deliver its second profit warning in as many months.

"While visibility is low and investor confidence is dented, these challenges are not unique and its valuation remains attractive, in our view," said Berenberg, which maintained its 'buy' rating on the stock but lowered its price target in order to reflect a lower earnings track and a higher risk premium.

"Hilton's -52% share price performance this year can be broadly bucketed 40:60 between de-rating and earnings cuts. While we think a de-rating is somewhat justified given a higher risk profile and the broader market de-rating, we ultimately believe that profitability will be restored. Furthermore, we think that entering a new geography could materially boost earnings. With this in mind, we think that there is value with Hilton trading on 10x FY23E pre-IFRS 16 earnings," said the analysts.

Reporting by Iain Gilbert at Sharecast.com