Tandem Group PLC (AIM:TND)'s stock market plunge does not spell doom for consumer-facing businesses and there could be grounds for the company to turn its fortunes around, analysts say.
The London-listed eMobility sports and leisure business’s share price nosedived by more than 20% on Wednesday after it cited “stubbornly high inflation” and weak consumer spending as the reasons behind its profit decline.
According to its interim results, its profit before tax slid to a loss of £900,000 for the first half of the year, down from a £300,000 profit a year earlier.
“Ongoing cost of living pressures have played a key part in this weaker performance, as has poor weather and a shift in the buying pattern of customers,” according to a broker note by Peter Renton, head of research on growth companies at stockbroker Cavendish Securities PLC, which was formed following a merger between strategic adviser finnCap and data company Cenkos.
But according to analysts, the big downward market sway does not spell doom for all consumer-facing businesses and Tandem could steady the ship.
Despite an annual trend of rising inflation, yearly increases to the Consumer Prices Index steadied their ascent with a rise of 6.7% in August, down from 6.8% in July.
The exception to this was motor fuel which led to the largest upward contribution to the change in the annual rates, according to the Office for National Statistics.
Analysts at Cavendish said that Tandem’s results must be viewed in context of the wider market in which it specialises, as mechanical bike demand is currently at a 20-year low with natural attrition causing weaker players to fail.
This will come as some relief for companies and their investors ahead of tomorrow’s announcement from the Bank of England on whether it will further raise interest rates.
The bank could take the decision to freeze the rate of interest, used as a monetary tool in times of rising price increases, in light of the recent ebb in annual inflation either tomorrow or in the near future.
Cavendish analysts forecast that Tandem will reduce its pre-tax loss after taxation to somewhere in the region of £100,000.
However, it predicts that, “as economic pressures are expected to persist”, Tandem will likely cut its profit after tax (PAT) estimates from £1.3 million to £700,000 for 2024.
Its analysts said that despite Tandem’s “suppressed” profitability, attributed to the weak economic environment, there remain “grounds for a meaningful improvement in profitability once economic conditions begin to improve".
In line with this, Cavendish said it has set a target price for the company of 350p, assuming its market valuation moves “in line with” its tangible net asset value (TNAV), or its share price as a multiple of net value, lifts from its current level of 0.6x to a predicted 1.0x.