- 2023 profits shy of estimates
- Tougher trading seen in December
- Board envisions brighter 2024
Shares in Inspecs (SPEC:AIM) plunged almost 30% to a 12-month low of 62.1p after the eyewear company warned its performance for the 2023 calendar year would be below market expectations due to softer sales in December.
The market took a dim view of the news, although Bath-headquartered Inspecs said it expected to report an eye-catching 16.1% increase in adjusted underlying EBITDA (earnings, before interest, tax, depreciation and amortisation) to £18 million for the year to December 2023 thanks to cost reductions and operational efficiencies and the balance sheet picture continues to brighten.
SLOW END TO THE YEAR
The designer and maker of eyewear frames, low vision aids and lenses said revenue for 2023 was broadly flat at £200.3 million and down £3.2 million in constant currencies at £197.8 million.
A slow end to the year, which left sales some £10 million shy of Peel Hunt’s (PEEL:AIM) estimates, reflected weaker consumer demand and delays to some orders, particularly in Germany, although the Inspecs board ‘remains positive’ for 2024 with ‘new accounts and distribution in place’.
WHAT DID THE CEO SAY?
Chief executive Richard Peck commented: ‘Whilst our revenue performance was affected by a soft market in December, I am encouraged that our focus on operational efficiencies in 2024 delivered an improvement in our margins.’
He also pointed out Inspecs pared its net debt by £3.3 million during the year to £24.3 million while investing in ‘significant additional manufacturing capacity for the future, with our new Vietnam facility coming onstream in H1 2024. Having further strengthened the balance sheet and extended the maturity of our financing facilities, I look forward to driving sales in 2024, whilst continuing our programme of improving operational efficiency and continuing to develop group synergies to enhance our performance.’
THE PEEL HUNT VIEW
‘Given the weaker recent trend,’ explained Peel Hunt, ‘we are taking a more cautious view on forecasts.’ The broker reduced its recommendation from ‘buy’ to ‘add’, slashed its price target by more than half from 215p to 100p and downgraded its 2023 and 2024 adjusted pre-tax profit forecasts by 29% and 25% to £7.3 million and £8.9 million respectively.
‘We believe the company has plenty of growth opportunities, with new brand listings, the expansion in Vietnam and progress in new product developments. However, the consumer environment is likely to remain muted, particularly in Germany,’ said Peel Hunt.
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IN THE FRAME FOR GROWTH
Although Inspecs, which supplies its wares to optical and non-optical retailers, global distributors and independent opticians, has witnessed a short-term downturn in demand, its long-term prospects are bright.
The company occupies a market with structural growth drivers including the ageing population, which underpins growth in eyeglass demand, as well as demographic change in regions such as Asia, where myopia levels among the young are rising.
Since the year end, on 22 January 2024, Inspecs acquired Norwegian distributor A-Optikk for a nominal sum.
The acquisition ‘marks a resumption of strategic acquisitions which increase the group’s vertical integration’, said Inspecs, and will ‘strengthen our Nordic business expansion plans and gives the group a new distribution hub in the Norwegian market.’
