Chocolate retailer Thortons (THT) has pleased the market for the second time this month with a very strong trading update. The shares jumped 4.6% to 79.25p after it said profit would be 'substantially ahead' of expectations.


The shares are now in their longest rally since 2006 but profits and the share price still remain well below earlier peaks. This should fuel the argument among the bulls that Thorntons is still only in the early stages of a recovery.


Latest rally THORNTONS - Comparison Line Chart (Actual Values)


The chart above illustrates how Thorntons has rallied in the past year and a bit, delivering an eight-fold gain for those who bought at the low point in January 2012.


Yet look at the following chart and you will see how the shares still trade well below levels on the eve of the global economic crisis in 2008.


10 years THORNTONS - Comparison Line Chart (Actual Values)


There is good reason why the shares haven't yet caught up. Thorntons achieved £8.3 million pre-tax profit in the financial year ending June 2008 versus a mere £1.7 million in 2012.


If you look at the chart on an even-longer term, it is clear that this business has been through the wars but is finally regaining market support.


20 years THORNTONS - Comparison Line Chart (Actual Values)


Thorntons is certainly in recovery mode, yet analysts don't expect profits to return to 2008 levels for some time. Stockbroker Panmure Gordon has published forecasts for the next two years, looking for £5.7 million in 2013 and £7.4 million in 2014.


It is worth noting that Panmure's numbers were significantly upgraded off the back of today's trading update. It previously expected £3.2 million pre-tax profit in 2013 and £5.5 million in 2014.


Analyst Philip Dorgan says: 'Thorntons is highly financially and operationally geared and the upside therefore remains considerable. We believe that our forward year forecasts still have upside and we remain buyers because we believe that it can drive sales through a number of channels and that its profits will further benefit from a reduced cost base. We believe that historic levels of profitability are within reach.' Panmure has a 100p price target.


Bethany Hocking at Investec Securities has raised her full-year profit forecast from £3 million to £4.5 million and her 2014 estimate from £4 million to £6 million. Upgrading her price target from 80p to 100p, the analyst says 'Thorntons is gaining share, trading well, and the transition to a FMCG (fast moving consumer goods) group with a retail estate is on track – we strongly reiterate Buy.'


Previous chairman Christopher Burnett tried to buy Thorntons in 2005 where he approached the board with a potential 185p per share offer. This was subsequently reduced to 130p before talks collapsed after Thortons said the proposals undervalued the business.


by Dan Coatsworth and James Crux

Issue Date: 24 Apr 2013