Investment Column: Sales figures turn sour for Thorntons

Axis-Shield; Alexon
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The Independent Online

Our view: Sell

Share price: 83.5p (-5.5p)If you can't sell chocolate at Christmas, clearly something is amiss.

Thorntons said in a trading statement yesterday that sales for the 12 weeks to 27 December were down 2.3 per cent against the same period last year, and while some areas of the business did grow the overall performance of the company over the Christmas period is disappointing.

Thorntons claims it has been turned around recently and has recorded an impressive eight consecutive quarters of growth. It is a well-run company and management should be applauded, but like almost every group that depends on high street footfall it is having a miserable time as the economy heads towards a recession.

Bits of the company performed well – the franchise business grew by 2.7 per cent, while the online service added 3.5 per cent of new sales. It is the group's own stores that are struggling, with sales dropping by 5.4 per cent

Investors will note that the stock fell by 6.2 per cent in trading after the update. While the company may point to its impressive growth record before the 12 weeks to Christmas, buyers should not give a hoot. The real question is how will it perform in the next quarter, and the one after that? With the high street likely to suffer more pain before things get better, it is difficult to present a credible investment case for the company.

Analysts at house broker Dresdner Kleinwort yesterday cut the group's target share price to 70p from 90p, and advise that clients hold the stock. We agree that the share price has further to fall, but would advise that investors cut their losses now. Sell.


Our view: Hold for now

Share price: 310p (-2.5p)

The biotech market has never been an investors' paradise when the economy slides into recession. Companies that have hitherto relied on a slew of money to turn science into medicine suddenly become very unpopular.

That is not true of all in the biotech camp, and for those that make plenty of cash a recession can cast them in a defensive light as other investment options reliant on consumer spending begin to struggle. Axis-Shield, the in-vitro diagnostics group, falls into the second group judging by the fact that the company has seen its share price rise by 25 per cent in the last 12 months. Yesterday it published its pre-close trading statement saying that full-year trading will be in line with management expectations, with revenues up 26 per cent, or 14 per cent on a constant currency basis, to £84m. Investors will note, however, that despite what can only be described as good news, the stock was down marginally, by 0.8 per cent, yesterday indicating that the market had already identified the group as a defensive pick and priced in the stellar performance.

"Investors should be reassured that the key drivers continue to perform as expected although with general confidence in the business running high, much of its achievements in 2008 are already reflected in the share price, currently trading at 17 times 2009 price earnings ratio," say watchers at Nomura Code. It is not that the group, which specialises in the excitingly named HbA1c testing through its Afinion, NycoCard and AxSYMxtra brands is a bad punt, but rather that new buyers should not expect to see huge share price growth in the foreseeable future.

Those seeking a safe stock should be buyers, but for investors seeking something a little racier, others may offer a more attractive option. Hold for now.


Our view: Avoid for now

Share price: 18.5p (+2p)

Investors have been desperately searching for good news from retailers this week as they announce their Christmas trading numbers. The best seem to have been from Debenhams and Next, which were up after doing less badly than expected.

Alexon, the group that owns the Ann Harvey and Eastex brands, saw its shares up 12.1 per cent by the close yesterday after announcing that "the 23 weeks ended 3 January show a decline of 10.5 per cent on the prior year", but that, "December trading for the group showed an improvement on the previous nine weeks". It now expects to make an operating profit for the full year.

A like-for-like improvement in December is creditable, but yesterday's numbers are still poor. The group's spin doctors stressed the appointment of a new management team last summer heralds a new era for the group. This may be true but sadly it is impossible to gauge. We are promised a full disclosure of the group's new strategy in the spring and investors should avoid the stock until at least then, not forgetting the dire state of the UK high street. Avoid for now.