Public relations and healthcare communications group Huntsworth (LSE: HNT) saw its shares decline more than 20% in early trade today, after the company issued a downbeat trading statement.
The company’s trading statement warned investors that:
“…first half results will be below market expectations. The Board is reviewing the second half year and, while there is work to do, we believe that the second half will show improvement over the first half year…”
Unfortunately, this warning came as somewhat of a shock, as Huntsworth’s previous trading statements had been broadly positive.
Around two months ago, during mid-May, Huntsworth issued a trading statement saying that the company remained on track to meet market expectations for 2014. This sudden change of tone implies that Huntsworth may have hit a speedbump.
Time to jump ship?
Should investors turn their backs on Huntsworth following this profit warning? Well, the company’s brief trading statement lacked any real substance, so for the time being, there is no reason to suggest that investors should run for the hills.
What’s more, Huntsworth is right in the middle of a significant transformation and has made impressive progress during the past few years. Indeed, as part of this transformation the group is diversifying its product offering and expanding into new markets, away from the company’s traditional stomping ground of Europe and the US. Huntsworth has recently received a large investment from a Chinese partner, which now owns 20% of Huntsworth’s shares and is helping the group grow within China.
In addition, Huntsworth has reduced its debt over the past year, pushing gearing down from around 30% as reported at the end of 2012, to 14% reported at the end of 2013.
However, this profit warning does suggest that the company’s transformation plan has run into sudden, unforeseen trouble and things might not be going to plan.
Nevertheless, after today’s decline Huntsworth is trading at an attractive valuation. At present levels the company trades at a forward P/E of 11, which is not an overly demanding multiple.
Further, the shares offer an attractive 6.7% dividend yield, covered nearly one-and-a-half times by earnings per share. In my opinion, Huntsworth’s low valuation and attractive yield give a margin of safety if things go wrong.
