The sharp rise was triggered by the news that Ferrero International SA has made a 145p per share cash offer for Thorntons.

Ferrero, whose brands include Kinder, Ferrero Rocher, Nutella and Tic-Tac, said that it had already purchased shares from a number of major Thorntons shareholders, including three directors.

In total, Ferrero says it already owns 30% of Thorntons shares and has received commitments to sell from shareholders representing another 4.46% of Thorntons shares. This gives Ferrero an effective stake of 34.46%.

As a result, the success of this offer seems almost certain. Ferrero only needs to secure a further 16% of Thorntons shares in order to take control of the firm, by controlling more than 50% of voting rights.

Is this a good deal?

Today’s cash offer puts a value of £111.9m on Thorntons, which was trading with a market capitalisation of £70m on Friday.

The 145p per share offer price equates to a 42.9% premium over Friday’s closing price and effectively values Thorntons’ shares on a 2015 forecast P/E of 23, and a 2016 forecast P/E of 16.

This seems fairly generous to me. Since 2009, Thorntons’ operating margin has averaged just 2.5% and its sales have only risen by an average of 0.8% per year. Operating profit has fallen by an average of 2.4% per year.

The current year has been disappointing, too. The firm’s third-quarter trading update showed a 7.6% fall in sales for the first nine months of the current financial year. Earnings per share are expected to fall by 33% this year and to remain below 2014 levels in 2016.

One particular problem has been that Thorntons has been a casualty of the current changes taking place in the supermarket sector. In its third-quarter trading update, Thorntons reported a massive 6.1% fall in UK commercial (wholesale) sales due to a reduction in order from one major customer.

Thorntons’ shareholders haven’t been rewarded for their patience, either. Dividends are a distant memory, with the last payout having taken place in 2011. At the same time, debt has risen sharply. Interest payments account for nearly a quarter of operating profit during the first half of the current year.

Should you sell today?

As I write, Thorntons’ shares are trading at 144.3p, almost exactly matching the Ferrero cash offer price of 145p.

Ferrero could be buying Thorntons shares in the market today, and I expect that it will have the 50.1% majority it needs to take control of the firm very soon.

If I was a Thorntons shareholder, I would sell my shares into the market immediately, as — apart from the dealing cost — there is no extra profit to be made by waiting for the offer to take effect.

By freeing up cash today, you can focus on finding new investment opportunities.

The post Thorntons plc Rockets Higher On Takeover Bid appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

For example, electrical goods company, AO World (LSE: AO), has seen its share price slump by a whopping 47% due to a profit warning, while chocolate manufacturer, Thorntons (LSE: THT), has delivered rather mixed financial performance and seen its share price slump by 6% during the period. Meanwhile, B&Q owner, Kingfisher (LSE: KGF), is up just 1% despite an improvement in its medium-term outlook.

Improving Outlook

However, looking ahead, all four companies have considerable potential to post much-improved performance for their investors. For starters, the consumer goods and retail space is set to benefit from an improving outlook for UK consumers, with disposable incomes set to rise at a faster rate than inflation for the first time in a number of years. This should not only lead to better sales and profitability figures, but should also cause investor sentiment in consumer-focused stocks to improve in 2015 and beyond.

In addition, the earnings outlooks and valuations for the four companies are relatively positive. Of course, Morrisons is experiencing a challenging period due to the UK supermarket going through a major transitional period that is seeing large, out-of-town shopping centres become less popular, with shoppers now favouring convenience stores and online. Looking ahead, this trend is set to continue and, with Morrisons being behind many of its major rivals in these two growth areas, it still has a lot of catching up to do.

However, with its bottom line set to rise by 20% next year, Morrisons has a brighter future than currently appears to be being priced in by the market and, with a price to earnings (P/E) ratio of 15.9, offers upside potential.

Other Options

The same can be said of AO World, Thorntons and Kingfisher. All three companies offer excellent growth prospects at a very reasonable price with, for example, AO World’s bottom line expected to bounce back strongly next year following this year’s disappointing performance. Similarly, Thorntons is forecast to post earnings growth of 43% in financial year 2016 after a tough year and, with the two companies trading on price to earnings growth (PEG) ratios of just 0.1 (AO World) and 0.3 (Thorntons), they seem to offer very wide margins of safety so that even if their forecasts are downgraded, their share prices may still rise at a rapid rate.

Meanwhile, Kingfisher is set to benefit from an improving outlook for the French as well as UK economy (around 40% of its business is derived from France), with the ECB’s quantitative easing strategy set to boost the economic performance of the region. And, with Kingfisher expected to post a 9% rise in its bottom line next year, its P/E ratio of 17.2 appears to indicate upside in the company’s share price.

As such, and while Morrisons appears to be a strong buy at the present time, teaming it up with the likes of AO World, Thorntons and Kingfisher could be a sound move.

The post Are AO World PLC, Kingfisher plc And Thorntons plc The Perfect Partners For WM Morrison Supermarkets PLC In Your Portfolio? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Kingfisher and Morrisons. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Mothercare

A recovery play, you’d add volatility by including Mothercare stock in your portfolio. Full-year results were released today and showed underlying pre-tax profit up 37% at £13m, backed by decent trends for like-for-like sales.

Mothercare has doubled in value in the last 12 months, and currently trades at 235p, which points to more downside than upside, in my view. 

As it continues to shut down underperforming stores, while betting on online growth (a strategy that seems to be paying off), its statutory pre-tax losses still stand at £13.1m, which is an improvement against the £26.3m loss it reported one year earlier, but is not a good enough performance to deserve my attention.

I’d need more evidence that its turnaround is on track in order to pay 40x forward earnings for a company that is shrinking and whose core margins are incredibly thin. That said, the good news is that it has successfully recapitalised its balance sheet, “ending the year with net cash of £31.5m compared to net debt £46.5m” one year earlier.

Thorntons

“The board of Thorntons has been informed by Jonathan Hart that he will be stepping down as chief executive officer and resigning his directorship from the end of the current financial year on 27 June 2015,” the chocolatier said on Monday, adding that a search for his successor is to be initiated. In the meantime, chief operating officer Barry Bloomer will act as interim chief executive.

Investors were caught by surprise as the announcement comes in the midst of a comprehensive restructuring that seems to be paying dividends, although the stock is still down 20% over the last six months. Its relative valuation suggests that Thorntons could be a calculated bet, given that it trades on net earnings multiples of 16x and 12x for 2015 and 2016 — uncertainty surrounding its management team may impact short-term returns, however.

Just like Mothercare, there’s no dividend attached to the investment. 

Ted Baker

Finally, Ted Baker belongs to a different league.

Its strength shows all the way through its income statement, balance sheet and cash flow statements. Fast-rising earnings will support a dividend policy that will likely become more generous over time, although its valuation, at about 28x forward net earnings and 17x adjusted operating cash flow carries more risk now than 12 months ago. 

The shares have risen 30% this year, and 15% in the last three months, but in relative terms they could become much cheaper simply because forward p/e  multiples could drop by 20% or more if management continue to surprise investors, just as they done for several quarters now. 

I’d bet on that. 

The post Why I’d Buy Ted Baker PLC, Hold Thorntons plc & Sell Mothercare plc appeared first on The Motley Fool UK.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Babcock International Group

Engineering giant Babcock International (LSE: BAB) has boosted the market in Monday trading and was recently 2% higher on the day. The business announced that revenues leapt 27% in the 12 months to March 2015, a result which drove pre-tax profit almost a third higher to £417.7m.

Babcock noted that the result of “major contract wins and by expanding the size and scope of existing contracts” helped to drive performance last year, and with the order book leaping an eye-watering 74% to £20bn, I believe that the London firm should keep on punching terrific growth. This view is shared by the City, and the engineer is expected to enjoy earnings rises of 12% and 11% in 2016 and 2017 correspondingly.

As a consequence Babcock changes hands on a great P/E multiple of 14.2 times prospective earnings for this year — any reading below 15 times is widely considered stellar value for money — and this drops to just 12.8 times for 2017.

WM Morrison Supermarkets

More industry data, yet more reasons to sell battered grocery business Morrisons (LSE: MRW). The Bradford firm saw sales slip a further 1.1% in the 12 weeks to April 26, according to Kantar Worldpanel, as the rip-roaring progress of budget chains like Lidl and Aldi continues to embarrass the established chains.

And Morrisons was given further cause for worry after retail researcher the Local Data Company announced that almost half of the company’s stores were situated in towns with an above-average number of discount stores, more than any of its industry rivals and leaving it susceptible to further customer slippage.

Given that the top line looks set to keep on deteriorating, I believe that current earnings forecasts for Morrisons are wildly optimistic, with the business expected to follow a 4% earnings turnaround for the year ending January 2016 with a 19% surge in 2017. And the supermarket is not exactly cheap, either, with Morrisons carrying P/E multiples of 15.5 times and 13.4 times for these years — I would consider a reading around or below the bargain benchmark of 10 times to be a fairer reflection of the risks facing the retailer.

Thorntons

Chocolate house Thorntons (LSE: THT) has suffered a sobering start to the week after chief executive Jonathan Hart announced his plans to exit the business in June. Shares in the business were recently dealing 2.1% lower, bucking the surge of recent months as investors scratch their heads over whether the company’s transformation strategy is paying off.

The chocolatier has shuttered swathes of its own-branded shops in recent years as its drive towards selling pre-packaged, premium chocolate bars in supermarkets has clicked through the gears. But the dragging performance of Britain’s leading retailers has weighed considerably, and Thorntons’ total FMCG revenues ducked 6.7%, to £26.5m, in the 12 weeks to April 25. Consequently the company warned that “we remain cautious about the outlook for the full year.”

Given that a revamp of Thorntons’ existing revamp may be in order — indeed, the City has pencilled in a 28% earnings dip for the year concluding June 2015 — I reckon a P/E multiple of 15.4 times fails to factor in the huge work that needs to be undertaken, not to mention the uncertainty swirling over the company’s direction following Hart’s departure.

The post Why I Would Buy Babcock International Group PLC But Sell WM Morrison Supermarkets PLC And Thorntons plc appeared first on The Motley Fool UK.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Is there value for investors in these three retailers after today’s news?

NEXT

Many great British retailers have struggled in recent years — just look at Tesco — but NEXT has continued to grow from strength to strength.

In this morning’s first-quarter trading update for the 13 weeks to 25 April, the company reported full-price sales growth of 3.2% and total sales up 4.1%. Management also reiterated previous sales and profit guidance for the full year: full-price sales growth of between 1.5% and 5.5%, and pre-tax profit growth of between 0.4% and 6.7%. These are decent numbers in a trading environment in which many retailers are struggling for growth.

NEXT’s four executive directors have all been with the group for 20+ years. A strong management track record is a great bonus for investors, and, in the case of NEXT, there’s another bonus in that the Board gives a clue to the price at which the shares might be a good-value buy. That’s because management sets a price, below which it believes buying back the company’s shares is the best use of surplus cash.

The current buy-back level is 6,827p, compared with a share price of 7,400p, as I write. And with a well-above market average forward price-to-earnings (P/E) ratio of 17.2 it may be worth waiting for a pull-back in the shares, as happened towards the end of last year when the spell of unseasonably warm weather hit sentiment and sent the shares below 6,500p.

Home Retail

Home Retail is in the middle of a five-year transformation plan for Argos and a recently-formulated productivity plan for Homebase. The group is seeking to not merely cope with the digital revolution, but to reinvent itself as a digital retail leader.

Full-year results this morning seem to show the group is well on track. Management reported a second year of like-for-like sales growth at both Argos and Homebase. A rise in pre-tax profit of 14% was ahead of analyst consensus expectations, and the Board confidently lifted the dividend for the year by 15%.

Home Retail was on a below-market-average P/E for the year ahead, and I’d now expect analysts to increase their earnings estimates. I reckon the new consensus would put the company on a P/E of less than 13, which looks an attractive rating.

Thorntons

Thorntons has struggled to adapt to changing shopping patterns so far. The company’s strategy is to cut back its High Street presence by closing under-performing stores. In this morning’s first-quarter trading update for the 15 weeks to 25 April, Thorntons said it had closed a further five stores during the period, leaving it with 243 stores — a long way off its longer-term objective of creating a flexible and sustainable estate of between 180 and 200 stores.

At the same time as shrinking its High Street exposure, Thornton’s is seeking to grow its commercial sales — supplying supermarkets and other third parties. However, this hasn’t been going to well, with the company issuing a profit warning in the run-up to Christmas as a result of short-term warehousing problems, but more worryingly “a significant reduction in previously indicated orders from the major grocers who also took in stock later than anticipated”.

Today’s trading update showed disappointing UK commercial orders persisting — sales in the division were down 6.1% — although the company said this was due to reduced levels of orders from one customer. However, that’s quite a hit from just one customer reducing orders, and I’m always a little wary of  companies that are to some degree at the mercy of a few big customers.

Thornton’s trades on a forecast P/E of less than 10 for its financial year ending 30 June. However, analysts see another year of falling profits ahead, with earnings forecasts pushing the P/E up to 12. I think, at this stage, Thorntons deserves a sub-par P/E and that this small-cap company is one to watch from the sidelines for the time being.

The post Should You Buy NEXT plc, Home Retail Group Plc Or Thorntons plc Following Results? appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons and Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

As a result, all three firms are set to hand over more of their annual profits to their pension schemes in order to eliminate the shortfall. How concerned should investors be about these companies’ onerous obligations to their pensioners?

A pension deficit can be found as “retirement benefit obligations” under “non-current liabilities” on a company’s balance sheet. The number represents the difference between the pension scheme’s assets — investments, such as equities, bonds, and property (even maturing whisky in the case of drinks company Diageo!) — and the present value of future retirement benefits that need to be paid.

The table below shows a selection of financial figures for BT, Aga and Thorntons.

As you can see, Aga’s pension deficit has doubled over the last 12 months, and now represents almost 100% of the company’s market capitalisation, compared with 73% for Thorntons and 20% for BT. Aga’s deficit is also equivalent to 7.5 times the company’s current annual operating profit, compared with 3.9 times for Thorntons and 2.3 times for BT.

Clearly, Aga’s deficit is the most serious, so let’s begin with the upmarket cooker company.

Companies and their pension trustees review the funding of their pension schemes every three years. Aga is currently in the process of doing that. If the existing deficit recovery plan were to remain in place, Aga would pay £4m this year and £10m a year from 2016 to 2021 inclusive, as well as a £30m lump sum contribution at the end of 2020.

With Aga’s annual operating profit currently £9.6m, the business is effectively being run for the benefit of the company’s pensioners. That will continue to be the case for the foreseeable future, even if Aga can grow its annual profits at a faster rate than most other companies. A tangible indicator of the lack of shareholder value here is the absence of a dividend since 2011. The board needs the consent of the pension trustee to pay a dividend, and hasn’t even asked, such is the miserableness of the financial position. In my view, due to Aga’s pension deficit, the company is currently uninvestable.

Thorntons is in the midst of finalising a new deficit recovery schedule with its pension trustee, which will see the annual deficit payment increase from £2.75m to £3.25m. With operating profit running at £9.3m, Thornton’s situation isn’t as dire as Aga’s, but — like Aga — the confectioner hasn’t paid a dividend since 2011.

Thornton’s pension scheme assets contain a relatively high exposure to equities of 65%, versus 28% for BT and 17% for Aga. Less risky assets such as bonds, are seen as more compatible with the nature of pension obligations, and Thornton’s high equity exposure could result in its deficit gaping much wider in the event of a stock market crash.

BT and its pension trustee have just finalised their triennial deficit recovery plan. The numbers involved are much bigger in absolute terms than those of Aga and Thorntons (starting with £2bn over the next three years), and the telecom firm’s extra annual payments also stretch out as far as 2030. However, relative to BT’s own financials, the obligations are less onerous than those faced by the two smaller companies — highlighted by the fact that BT pays a dividend.

Pension deficits have become such a problem of late largely because of low gilt yields, resulting directly from the fiscal policy of Quantitative Easing. Unprecedented low yields have meant unprecedented low discount rates applied to pension schemes projected liabilities. While scheme assets have generally been increasing in value, liabilities have been increasing at an even higher rate.

This situation should reverse when things get back to normal, and is an added reason why I think investors in BT should not be too concerned about the company’s current pension deficit. I also think this factor makes Thorntons investable at the present time — although whether the company’s current business performance merits investment is another matter. The position at Aga, though, is so extreme that, in my view, the stock is currently best avoided.

The post Should You Worry About Pension Payments At BT Group plc, AGA Rangemaster Group Plc & Thorntons plc? appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in Thorntons (LSE: THT) have risen by 11% today despite there being no significant news flow released by the company. Of course, they remain 20% lower than where they started the year after a rather mixed trading update seems to have hurt investor sentiment somewhat. However, Thorntons could prove to be a surprisingly worthwhile investment at its current price level.

That’s because the UK consumer outlook is very positive, with low inflation, real terms wage rises and an economy that is among the fastest growing in the developed world creating favourable trading conditions for discretionary products companies, such as Thorntons.

And, with its bottom line forecast to rise by 32% next year, it puts the company on a price to earnings growth (PEG) ratio of just 0.2, which indicates that its shares are very undervalued and could make strong gains over the medium to long term.

PZ Cussons

Shares in PZ Cussons (LSE: PZC) are up 5% today and, as with Thorntons, there has been no significant news flow released by the company. This takes their gain in 2014 to 8.5% but, of course, PZ Cussons’ one major weakness continues to hold it back: a lack of regional diversification.

Clearly, the challenging trading conditions in PZ Cussons’ main market, Nigeria, are an external factor that the company has little or no control over. However, it continues to affect its performance and is a key reason why earnings for the current year are expected to be 3% lower than for last year.

Furthermore, with PZ Cussons trading on a price to earnings (P/E) ratio of 19, it seems to be overvalued given its current level of performance.

Reckitt Benckiser

While Reckitt Benckiser (LSE: RB) offers a size, scale and level of diversification that is of huge appeal to investors, it remains relatively unappealing at its current price level. Certainly, it has very exciting long term prospects, with the developing world offering the company a vast opportunity to boost its top and bottom lines. However, much of this growth appears to already be priced in to its valuation.

For example, Reckitt Benckiser trades on a P/E ratio of 24.2 which, given its mid-single digit growth forecasts for the next couple of years, seems hard to justify. As such, and while it is undoubtedly a high quality stock, investors may be better off waiting for a pullback in its share price before buying a slice of it.

SABMiller

Even though SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) trades on a rather rich P/E ratio of 22, it still appears to be worth buying at the present time. That’s because, over the next two years, it is forecast to increase its bottom line by 9% and 10% respectively. This is an upbeat rate of growth and is around 50% higher than that of the wider index.

However, what makes SABMiller an appealing stock is the consistency of its business model. It has a very diverse geographical spread, multiple brands and has proven to be a top notch defensive stock in previous years, while also offering above average long term growth prospects. And, with its shares having outperformed the FTSE 100 in the last one, five and ten year periods, it has an excellent track record of outperformance that make it a desirable long-term holding.

The post Should You Buy Thorntons plc, PZ Cussons plc, Reckitt Benckiser Group Plc And SABMiller plc? appeared first on The Motley Fool UK.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of PZ Cussons and Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The increase in sales was a pleasant contrast to the 3.7% like-for-like decline reported during the first quarter of the year, and means that Thorntons’ like-for-like retail sales rose by 2.2% during the first half of the firm’s current financial year.

Not all good news

However, it wasn’t all good news. Just before Christmas, Thorntons warned that two large grocery customers had not ordered as much from its wholesale division as previously expected. The firm also said that the disastrous rollout of its new warehouse had disrupted sales.

Today, the firm provided some numbers to illustrate the impact of these problems. For example, sales from Thorntons’ wholesale division fell by 11.2% during the first half of the year.

Given that the firm’s sales were evenly split last year between wholesale and retail, this decline suggests that Thorntons’ total sales fell significantly during the first half of the year. We won’t have any figures until the firm publishes its results on 2 March, but Thorntons has already said that it doesn’t expect to meet current profit forecasts for the 2014/15 year.

Thorntons still looks cheap?

Thorntons is not very well covered by City analysts — according to Reuters, only two analysts currently cover the stock. Interestingly, neither appears to have adjusted their earnings forecast for the current year, despite Thorntons’ warning before Christmas that profits for the current year would be below those achieved last year.

I suspect that the analysts involved are waiting to see Thorntons’ interim results in March, at which point the scale of the profit shortfall should be more obvious.

As a result, however, Thorntons appears to be very cheap based on published earnings forecasts, trading on around eight times 2015 forecast earnings and six times 2016 earnings.

Should you buy Thorntons based on these cheap valuations?

Personally, I think it would be a brave move to buy Thorntons ahead of the firm’s half-year results on 2 March. The firm’s net debt is too high for my liking, at £32.9m, and profit margins may have fallen during the first half, given the sharp drop in volume sales.

The post Is Thorntons plc A Buy After A Promising Trading Update? appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

One of the immediate benefits from lower priced oil is the petrol-pound saved by consumers like you and me. Already, thanks to lower pump prices, I’m seeing my family’s domestic budget stretching further.

Where will these leftover pounds go?

In my case, a pound not spent tends to be a pound that I squirrel away in a bank account. However, I’m well aware that my financial behaviour, and that of many other investors, seems to be different from just about everybody else I know. For most people, a pound not spent seems to become a pound that needs spending as soon as possible!

So where might these bonus pounds saved from the petrol pump end up? My guess is that a good chunk of them could find there way to consumer goods, fashion items, big-ticket items such as white and brown goods, new finance deals for vehicle upgrades and any other type of splurging purchase we can think of. That makes me bullish on retail shares in general for next year, but my expectations are particularly sanguine about firms providing us with ‘quick fix’, consumable luxuries.

Looking at my portfolio, one standout potential beneficiary of extra consumer cash is restaurant chain Tasty (LSE: TAST), which specialises in a good-times blend of pizza, pasta, grilled meat and plonk. The firm’s Wildwood brand is rolling out profitably in the UK casual dining market. However, today, I want to talk about an even more immediate consumer fix — chocolate!

A tempting blend of recovery and growth

British chocolate manufacturer Thorntons (LSE: THT) used to struggle to turn a profit. High-cost leases and other trading expenses from the high street store estate kept the firm struggling. However, a new chief executive, Jonathan Hart, came with a new vision for the ailing chocolate producer. The simple plan involved reducing the store count, mainly as leases expired, and switching the business model over to a fast-moving-consumer-goods approach that involved getting the firm’s product everywhere that it might sell.

Despite the recent pre-Christmas profit warning, generally, the strategy is proving successful. Now, the Thornton-brand appears next to other chocolate packets in almost every food store, and earnings are recovering:

The share price did well, too, rising from around 10p at the beginning of 2012 to just over 165p in March. Since then, the share price has slipped back, but Thornton’s recovery and growth strategy has much further to run, in my opinion. Further own-store closures look set to reduce forward costs and the company eyes more market share gains in British chocolate categories, and international expansion, as the next big frontiers.

What  next?

Thornton’s pays no dividend, which suggests the firm remains confident of its growth proposition in the medium to longer term. The chocolate purveyor’s blend of cost cutting and growth initiatives certainly tantalises my taste buds, and I’m clutching my box of Thornton’s shares with enthusiasm as we move into 2015.

The post Thorntons plc: The One Stock I Would Buy For 2015 appeared first on The Motley Fool UK.

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Kevin Godbold owns shares in Thorntons and Tasty. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It was a big one, too: recent consensus forecasts for Thorntons were suggesting earnings per share growth of around 11% for this year, but the firm now says profits will be lower than last year. This suggests to me that earnings per share could be as much as 15%-20% below current estimates.

What’s gone wrong?

Thorntons says that major supermarkets have cut planned orders for some of the chocolate firm’s most popular products. Supermarkets have also been placing orders later than usual.

The problems have been made much worse by teething problems at Thorntons’ new centralised warehouse, which the company says has caused disruption for all of its customers, especially its UK Commercial channel customers — supermarkets and other retailers.

Thorntons says that problems with the new warehouse caused “lost and late sales with consequent missed promotional slots and reorders”.

In other words, the company couldn’t ship orders promptly, meaning that some were cancelled altogether, and others missed promotional slots with big retailers that would have generated a surge in sales.

It’s clear that despite Thorntons’ claim to have carried out extensive testing of its new warehouse facility, the rollout was a fiasco.

Is the worst over?

Back in October, Thorntons warned that UK Commercial channel sales had fallen by 16.4% during the first quarter of the firms’ financial year, which starts on 28 June.

At the time, the firm said it expected the reduction of orders to reverse in the second quarter, but we can now see that this hasn’t happened, even though this quarter includes the run-up to Christmas.

As a result, I’m sceptical: perhaps the current, lower levels of orders from the big supermarkets will now be normal?

Thorntons looks cheap

Before today’s profit warning, Thorntons was trading on a forecast P/E of around 11.0.

Assuming that earnings per share are 15% lower than expected, the firm’s shares now trade on a forecast P/E of 10, which looks cheap — but personally, I would wait until the firm’s next set of results before deciding whether to buy, in order to judge how serious and long-lasting the current weakness is likely to be.

After all, Thornton’s may look cheap, but it has a lot of debt and falling earnings — this is a risky situation.

The post Thorntons plc Slides 25% On New Profit Warning appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.