Wilmington PLC (LON:WIL) shares dropped in early trading Friday as the company predicted low revenue growth for the current financial year as underlying costs were expected to rise on inflationary pressures.
In a year-end trading update, the professional texts publishing firm said its pre-tax profits for the year just ended would be in line with market expectations despite revenue being lower than previously expected at £122mln as cost reduction measures offset the shortfall.
The group added that the second half of the year had not seen a recovery in trading that was previously anticipated, and as such full-year revenue would be up 1% on an absolute basis but down 3% on an organic basis.
“No significant improvement” in UK healthcare division
In its divisions, the company said its core UK healthcare business had seen “no significant improvement in performance” during the second half of the year, although sales activity had shown signs of improvement.
Meanwhile, the group’s professional division saw flat revenues compared to the prior year, with growth in the accountancy branch offset by a small decline in investment banking and a flat performance in law.
The risk & compliance division had a stronger second half performance, driven in part by good membership uptake for the International Compliance Association, an uplift in demand for in-house courses in the UK, and strong demand in Asia Pacific.
In its outlook, Wilmington said given the challenges experienced in the second half, revenue growth for the current financial year was expected to be in the “low single digit percentage range”.
Inflationary pressures
The firm also expected underlying costs would rise during the year due to inflationary pressures, the full year impact of the new London HQ and IT infrastructure implemented last year, and the one-off nature of certain of the cost reductions achieved last year. This, therefore, would result in a single digit reduction in profits for the full-year.
Wilmington also acknowledged that the benefits of several significant actions taken over the last year, including investments in its core digital platforms and integrating its UK healthcare businesses into a single unit, were taking longer to materialise than expected and the additional effort required had impacted growth plans.
In a note to clients, analysts at City broker Shore Capital downgraded the stock to 'Hold' from 'Buy', saying: "We are positive on WIL’s longer-term growth potential (which should be enhanced by investment / reorganisation under its Sixth Gear self-help programme), its exposure to regulatory, compliance / legislation-driven change, the fact that “must have” information lies at the heart of its operations, and its international growth potential.
They added: "That said this is a disappointing update (particularly in view of our earlier downgrades) and it is now very important that the company begins to demonstrate that it can actually deliver against this organic growth potential following a number of false starts, strategic initiatives and significant cost investment. We will review our forecast in light of revised guidance...but in the meantime have decided to move our BUY recommendation to HOLD in anticipation of lower growth and a negative share price reaction."
The downgrade was followed by a target price cut to 305p from 375p from fellow broker Numis.
In mid-morning trading, Wilmington shares were down 25.6% at 178.5p.
--Adds Numis target price cut and updates share price--