Better than expected full year results trigger a 4.4% boost in Hotel Chocolat (HOTC:AIM) shares to 237.5p.

House broker Liberum upgrades earnings per share forecasts by 3% for the 2017-2019 financial years and raises its share price target from 230p to 295p.

Hotel Chocolat, which floated on the stock market in May, has reported a 181% rise in pre-tax profit to £8.2m for the year to 26 June 2016.

This impressive earnings gain represents the core business. It excludes £2.6m of one-off costs relating to the IPO (initial public offering) and the acquisition of St Lucia-based Hotel Chocolat Estates.

FLINGING THE DOORS OPEN

Liberum is surprised by the number of new stores that will be open before Christmas this year.

It had forecast five new openings in the current financial year, but says it is now apparent that at least nine new outlets will be ready in time for the festive gift season.

DIVIDENDS AROUND THE CORNER

Hotel Chocolat says it is too early to start paying dividends as it remains in expansion mode. However, it does intend to pay dividends eventually.

Liberum believes the first dividend will appear next year and forecasts 1.5p per share for the 2017 financial year, rising to 1.8p in 2018. That implies a 2017 prospective dividend yield of 0.6%.

Investors need to consider Hotel Chocolat is likely to grow the dividend by a decent amount every year, so don’t think the near-term yield implies the company will be stingy with cash rewards.

Fundamentally we’d view this stock as one that will reward shareholders predominantly with capital growth.

THE NEXT FEVERTREE?

Amati fund manager Douglas Lawson believes the chocolate seller is similar to Fevertree Drinks (FEVR:AIM) which has seen its share price increase by more than 600% since floating on AIM two years ago.

He claims both Hotel Chocolat and Fevertree are doing something new and innovative in sectors where there is a ‘lazy but dominant competitor’. Fevertree is racing away with tonic water sales, no doubt at the embarrassment of Schweppes.

For Hotel Chocolat, it is bringing a touch of sophistication to the market and filling a hole once occupied by Thorntons.

‘Hotel Chocolat has a really good shot at replacing the incumbent,’ claims Lawson.

‘Thorntons lost its allure as a gift when it went onto the supermarket shelves. Hotel Chocolat has superior products and they look better,’ he comments.

HOW IT WILL BOOST DIGITAL SALES

Lawson believes Hotel Chocolat is a good example of retailer that will use physical shops as showrooms, thereby laying the foundations for future digital sales.

‘I visited a Hotel Chocolat store, I saw what was on offer and I now use its website to buy items and get them sent as presents,’ he explains.

‘Growing the online channel is significantly less capital intensive than lots of physical shops.'

You can see the group’s online channel is performing well with 20% digital revenue growth reported in today’s full year results.

A new website will be launched in the first half of 2017, says the company.

We highlighted Hotel Chocolat in September as one of our top picks for investors looking to buy AIM shares in order for their estate to qualify for inheritance tax benefits.


Issue Date: 19 Oct 2016