Restore PLC (LON:RST) saw its shares drop on Monday as worries over lower volumes at its shredding business took the shine off an otherwise upbeat year-end trading statement, and led Liberum Capital to reduce its estimates and target price.
In its update for the year ended 31 December 2018, the office services provider said full-year trading was broadly in line with expectations and it expects to deliver its ninth successive year of double-digit earnings growth.
The AIM-listed group said its earnings growth continued to be driven primarily by its Restore Records Management division, which comprises the majority of the group's profit.
The firm added that TNT Business Solutions, acquired in May 2018, performed in line with expectations and is providing Restore Records Management and other parts of the group with many additional growth opportunities, particularly in the public sector.
However, the company said its shredding business Restore Datashred - one of the two main operators in the UK market - experienced lower volumes than budgeted over the course of the year.
In late morning trading, Restore shares were 11.4% lower at 343p.
Liberum cuts target, keeps ‘buy’
In reaction to the update, Liberum Capital reduced its target price for Restore to 635p from 660p, while maintaining a ‘buy’ rating on the stock.
Liberum’s analysts commented: “A lower than expected volume performance in Shredding combined with the first bad debts since 2013 results in us reducing our FY18 PBT estimates by 5%. Despite this, the group is still expected to deliver 13% EPS growth – reflecting the strength of its model.
“As a result we remain confident that the group’s existing strategy has the potential to drive significant top-line growth alongside greater operational efficiency in the coming years.”
They added: “Whilst we acknowledge the recent announcement of the retirement of the long term CEO Charles Skinner creates some uncertainty, we believe that this is more than discounted in the current rating.”