Fresh food producer Bakkavor Group PLC (LON:BAKK) has warned that it expects first-half margins to weaken amid subdued consumer confidence and inflationary pressures, sending shares down more than 10% on Thursday.
The company, which supplies ready meals to Marks and Spencer Group PLC (LON:MKS), Tesco PLC (LON:TSCO), J Sainsbury PLC (LON:SBRY) and Waitrose, said it expects little improvement in underlying market conditions and therefore sees its EBITDA margin failing.
READ: Bakkavor confirms full year expectations in “robust” update
However, Bakkavor predicts a “significant improvement” in trading in the second half as UK revenues improve on recently secured new business. The group acquired cake maker Haydens Bakery last September for £11mln.
"Looking further ahead, we remain confident that our strategy, combined with our scale and expertise leaves us well-placed to capitalise on further growth opportunities within the attractive fresh prepared food market, both in the UK and overseas,” said chief executive Agust Gudmundsson.
The group, which floated its shares in London in November 2017, issued the outlook as it reported full-year revenue for 2018 of £1.86bn, up 2% from a year ago, and pre-tax profit of £67mln, up 36%.
“We delivered a robust performance in 2018, successfully driving growth across our UK and international businesses against a backdrop of significant market challenges,” said Gudmundsson.
Analysts at Peel Hunt repeated a ‘buy’ rating on the stock but cut its target price to 190p from 200p.
“We have revisited our numbers following the FY results meeting and, in light of the commentary round the H1 numbers, we are reducing our forecasts by 4-5%,” they said.
“Clearly H1 will be a difficult period, with limited volume growth combined with higher input pricing (+3%) and labour costs.”
In afternoon trading, shares were trading at 144.2p each.