Fuller, Smith & Turner PLC (LON:FSTA) has been downgraded to 'hold' from ‘add’ by Peel Hunt after the group warned Friday that its full-year pre-tax profit will be well below consensus.
In a statement, the pub and hotel business said the costs associated with the sale of its brewing business to Japanese company Asahi have been “materially higher than expected”.
The London-based group said profit before tax is now estimated to remain flat year-on-year around £31mln against a consensus forecast of £43.4mln.
“One could argue Fuller’s is being cautious with some of its assumptions and that some of these transitional costs are exceptional, but the profit before tax guidance is falling by £9m for 2021 and 2022,” Peel Hunt's analysts said in a note to clients.
The broker, which slashed its 2020 forecast by 26% to £31.3mln, noted that the company should include details on plans to help recoup the lost profits with its the interim results, scheduled for December 12, the first numbers prepared by new chief financial officer Adam Councell.
A strong balance sheet paired with an improved focus on the pubs exclusively should help the company grow profits, according to Peel Hunt's analysts, which chopped their target price for Fuller's to 950p from 1,200p.
Analysts at Liberum Capital followed suit, revising down their target price for Fuller's to 915p from 1,050p in a note arguing that today's news does not help confidence in Fuller’s short-term transition into a pure premium pub and hotel business.
However, Liberum's analysts maintained their 'hold' rating and pointed out that the company is in “an exciting position” with a large acquisition pool, and they estimate that has cash of around £110mln left for this purpose following the purchase of Cotswold Inns & Hotels for £40mln announced last month.
Fuller's A shares were down 4.8% to 1,000p on Friday morning.