Interactive Investor

Shares round-up: Bloomsbury, Pets at Home, Fresnillo and IG Design 

26th January 2022 13:06

Graeme Evans from interactive investor

Optimism has returned to financial markets today, but it’s not been a great day for everyone, among them IG Design which slumped 56%. Our City reporter explains why. 

The “scarcity value” of Bloomsbury Publishing (LSE:BMY) and accelerating growth at Pets at Home Group (LSE:PETS) were highlighted today as the mid-cap shares surged on the back of strong updates.

Bloomsbury jumped 33p to 363p as it revealed that profits for the year to 28 February will be materially ahead of City expectations, while Pets at Home added 12.2p to 430.2p after delivering another upgrade to guidance in the wake of strong Christmas trading.

Analysts have backed both to go higher, with Liberum seeing the potential for Pets at Home to reach 575p and Peel Hunt and Investec backing academic and consumer books publisher Bloomsbury to hit 400p. 

Investec raised its profits forecast for 2022 by 11% and said the Bloomsbury story “continues to be one of operational excellence”.

The broker added: “The latest upgrades to forecasts demonstrate that the virtuous flywheel at Bloomsbury is very much in place, with ongoing investment in high quality content underpinning growth, which then fuels future opportunities.

“Bloomsbury has a range of characteristics that make it an appealing and scarce asset, and the market mis-prices this in our view.”

This sentiment is echoed at Peel Hunt as the broker moved to a “buy” recommendation based on the company's strong balance sheet and diversity of titles and trading regions. “This is a high-quality business that consistently delivers and has scarcity value.”

Peel Hunt has also upgraded Pets at Home to a “buy” rating after the chain reported quarterly sales growth of 28.1% on a two-year basis as it continues to benefit from tailwinds around “long-term pet ownership, humanisation and premiumisation”.

Pets at Home faces inflationary pressures across the supply chain, but today's strong sales performance went some way to mitigating those fears. The company raised its profits estimate by 5% to at least £140 million, meaning analysts at Liberum have now upgraded their forecasts by 33% over the past year.

The broker said: “We see further forecast upside risk driven by accelerating market growth and self-help. A significant cross-selling opportunity remains to drive share of wallet across the group’s products and services.”

Shares have fallen about 20% from their highs last September, partly due to the prospect of chief executive Peter Pritchard leaving in the summer after 11 years with the business.

The stock trades on forward earnings of 17 times, which Liberum said did not look demanding based on the double-digit growth and solid dividend on offer.

Elsewhere on the London market, stocks under selling pressure included silver and gold miner Fresnillo (LSE:FRES) as it warned over Covid-19's worsening impact on operations in Mexico.

The FTSE 100-listed company, which has six mines in the country, reported in-line production figures for 2021 but guidance for this year is weaker than expected due to staffing issues, which also relate to new labour laws limiting the use of contractors.

Shares tumbled 96.6p to 708.4p, their lowest since May 2020 and well short of Peel Hunt's target of 1,120p.

Chief executive Octavio Alvidrez said: “We must continue to navigate the challenges presented by both Covid-19, which regrettably is again accelerating in Mexico which will impact labour availability in particular, as well as continue to adapt to the new labour reform.”

Gifts and stationery business IG Design Group (LSE:IGR), whose Tom Smith brand holds the Royal Warrant for the supply of Christmas crackers and wrapping paper, slumped 143.5p to 111.5p on AIM after scrapping its full-year dividend alongside a profits warning.

Its US division incurred significant supply chain costs, with these freight, labour and raw materials headwinds resulting in a group-wide operating margin for the first nine months of the financial year of 4%, down 4.6 percentage points.

Full-year earnings are expected to be significantly below current market expectations.

Chief executive Paul Fineman said:  "To say that I and the whole board are disappointed with our financial performance over the FY22 to date is a huge understatement.”

He expects the challenges to continue in the new financial year but notes that consumer demand remains strong and that discussions with customers and suppliers to mitigate the headwinds are progressing. The company hopes to resume dividend payments in the new financial year.

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