Interactive Investor

Winners and losers: Trustpilot triumphs amid profit warning carnage

A number of stocks have suffered significant losses this trading session, but at least there’s one giving investors something to cheer. Our City writer rounds up the action.

19th September 2023 15:54

by Graeme Evans from interactive investor

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Five-star reviews for Trustpilot Group (LSE:TRST) results today sent the consumer platform to the top of the FTSE All-Share in a session scarred by profit warnings and weak guidance.

The Copenhagen-based business, which was valued at £1.1 billion when shares made their debut at 265p in March 2021, jumped 14p to 97.1p thanks to upgraded earnings guidance alongside “strong” and resilient first-half figures.

Its performance was in contrast to the mood elsewhere after profit warnings by consumer-focused stocks ranging from B&Q owner Kingfisher (LSE:KGF) to the AIM-listed pair of windows and doors specialist Safestyle UK (LSE:SFE) and fashion retailer QUIZ (LSE:QUIZ).

Naked Wines (LSE:WINE) shares also fell 10% after the subscription business reported a slower-than-expected start to the new financial year, with revenues down 18% in a performance that has prompted it to revisit going concern assumptions.

The company reported a bottom-line loss of £15 million for the year to 3 April, although it continues to have faith in its “pivot to profit” strategy after an improved underlying surplus of £17.4 million.

Shares have more halved this year, prompting an apology from founder and chairman Rowan Gormley in the opening line of today’s letter to shareholders.

He said: “Make no mistake, trading conditions are tough. As you would expect, high inflation, higher taxes on alcohol and falling disposable incomes has put pressure on sales and costs.

“Combine that with multi-year production cycles for wine and falling new customer acquisition and you have a perfect storm, driving inventory build-up and pressure on cash, which has resulted in our reporting a material uncertainty around our going concern.”

He believes the problems are fixable and that a clear plan on costs and inventory commitments means management is now in a position to get sales growing again.

Gormley added: “While I think that the team's plan is a good one, success is not guaranteed.

“This is not as gloomy as it sounds. If we can't improve our new customer acquisition economics, then we still expect to have a profitable, cash generative business, albeit smaller than the one we have today.”

Analysts at Jefferies today cut their earnings forecast but remain supportive of the company based on a “buy” recommendation and price target of 125p.

AIM’s biggest fall came from Safestyle after it said its order intake during the busiest period of the year had fallen behind expectations. It blamed unseasonably warm weather at the end of August and early September for compounding the macroeconomic factors that influence market demand levels.

It now expects an underlying loss in the range of £9.5 million and £10.5 million, compared with the £6 million forecast in July, and year-end debt between £5.5 million and £6.5 million.

Shares fell 44% to 4.62p as the company said it intended to engage with stakeholders on ways to strengthen the balance sheet “to support its recovery and help facilitate future growth”.

It added: “The board maintains the growth recovery prospects are strong and clear data highlighting the UK's ageing housing stock in need of repair underpins this.”

On a brighter note, Trustpilot shares rallied to their highest level this year after its recent progress on new business and retention rates continued into the third quarter.

Management has maintained its mid-teens constant currency growth expectation for the year but now sees adjusted earnings ahead of current market forecasts.

Analysts at Berenberg have a price target of 160p after upgrading their full-year earnings estimate by 34% to $7.5 million (£6 million). They added: “We think that this upgrade is impressive considering the tough macro backdrop, and it highlights Trustpilot’s resilience and the operational leverage inherent in its business model as it continues to scale.”

Total reviews increased 25% to 238 million and Trustpilot said the UK contributed 39% of its total bookings at $38.6 million (£31.1 million). It added: “The UK remains the most developed of our regional markets, where the viral network effect has taken hold and enabled us to achieve highly attractive unit economics.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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