Shares digital

Dip in fortunes won’t sour upmarket confectioner’s outlook

by John Marshall

Following the group’s Q3 trading update three directors of upmarket confectioners Thorntons – including chairman John von Spreckelsen and the chief exec Mike Davies – bought shares signaling that they feel that the profits warning was a ‘blip’ rather than an ongoing problem.

Both von Spreckelsen and Davies have been enthusiastic investors in the company since they joined in 2006, often at higher prices. Von Spreckelsen has 650,000 shares worth £929,500 and Davies 120,000.

The Thorntons profits warning reflected lower margins. This was caused by short-term production problems rather than higher ingredient costs. These were the result of a shorter than usual gap between Christmas, Valentine’s Day, Mothers’ Day and Easter, which necessitated weekend and overtime working.

However, the group made progress with its basic problem – inadequate sales. The current management team inherited a factory which was operating well below capacity. They are seeking to improve this by increasing sales through other retailers as well their own stores. The trading update underlined the continued success of this strategy, with third-party sales up by some 14%.

Although the group has been faced by rising ingredient costs it is in a stronger position than rivals as only 4% of sales are own label.

Von Spreckelesen came to the group with a high reputation having masterminded the recovery of both Budgens and Somerfield – both of which were then acquired. Thorntons itself has been the subject of several unsuccessful takeover approaches, which always faltered on price. Perhaps von Spreckelsen may yet again succeed in making a business attractive for a predator.

Meanwhile he has attracted some talented colleagues. Davies was formerly with Mars while the marketing director Peter Wright came from Tesco.

The house broker Dresdner Kleinwort is forecasting EPS of 8.3p rising to 9.6p, putting the shares on a PE of 17.2 falling to 14.9.