Smaller Companies: Don't get sweet on Thorntons

IT HAS been the sweet taste of success for shareholders in Thorntons, the upmarket chocolate retailer and maker, on the progress of the last few years. From a low of 135p in early 1996, the shares have climbed, and now stand at an all-time high of 288.5p.

Not bad, when so many smaller companies have been stuck in the doldrums. Clearly the view is that the nation's sweet tooth is in no danger of disappearing, whatever the verdict of the health police, and that expansion will go on unimpeded for the next few years.

And on their current price, the shares are expecting great things to come. Assuming the company maintains sales growth of 20 per cent a year for the next three years, the shares are still trading on a price/earnings ratio of 23 times for 1998 earnings and 20 times 1999 earnings, on the basis of forecasts by stockbroker Henderson Crosthwaite. That is roughly a 25 per cent premium to the sector. Last October the group posted a 32 per cent rise in profits to pounds 11.5m for the year to June 1997, excluding a pounds 21.7m restructuring provision in 1996.

At the same time recently appointed chief executive Roger Paffard has introduced a simple plan for keeping the ball rolling. He hopes to oversee a huge stores expansion, with 200 new shops opened over the next four years, taking the chain to more than 500 sites. Over 500 staff will be recruited for the expansion.

He also hopes to restructure the manufacturing and packing facilities.

While there should be scope to improve efficiencies, this could well be offset by the cost of the expansion. Rents, pre-opening expenses - refurbishing and fitting out the new shops - could well prove a drag on profits for the next few years. And profits are also dependent on new manufacturing facilities opening in time for this year's Christmas rush. Work is on schedule, but it introduces further uncertainty into the equation.

The market is over-egging the cake at Thorntons. Growth should continue, but the share price is expecting too much. For non-holders the shares are best avoided. Existing holders could be well served by taking some profits.

Suggested Topics
PROMOTED VIDEO
News
peopleFox presenter gives her less than favourable view of women in politics
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
Life and Style
The Zinger Double Down King, which is a bun-less burger released in Korea
food + drinkKFC unveils breadless meat beast
News
i100
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into disastrous conflicts
News
In other news ... Jon Snow performed at last year's Newsroom's Got Talent charity event
people
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Text messaging changes as a relationship evolves
life
News
The comedian, 42, made the controversial comment following the athlete’s sentencing to five years for the culpable homicide of Reeva Steenkamp on Tuesday
peopleComedian's quip about Reeva Steenkamp was less than well received at music magazine awards
Sport
Cristiano Ronaldo in action for Real Madrid
football
News
peoplePerformer had recently been diagnosed with prostate cancer
Life and Style
food + drink
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?