Today’s mid-cap losers are J D Wetherspoon (LSE: JDW), John Menzies (LSE: MNZS), Centamin (LSE: CEY) and Stock Spirits (LSE: STCK) after all four companies issued profit warnings and downbeat trading outlooks this morning.
Contracting margins
Wetherspoon is falling after the company warned that its operating margin will contract within this financial year as sales slow and pubs suffer from “stealth taxes”.
For the group’s first quarter to October 26, like-for-like sales increased 6.3% year on year and total sales increased by 11.3%. However, the company’s operating margin fell to 7.7%, compared with 8.3% in the same period a year ago.
Nevertheless, even after today’s decline Wetherspoon’s is still trading at a demanding valuation. At present levels the company is trading at a forward P/E of 15.4. Still, according to current City estimates the group is expected to report earnings per share growth of 14% next year. With margins contracting, this forecast for growth could be revised downwards.
Aviation issues
John Menzies warned shareholders today that the group’s full-year profit from its aviation business would be, “materially below expectations”. What’s more, as an indicator of how bad things are at the division, the unit’s managing director is leaving the company immediately.
Menzies has been trying to expand its presence within the UK aviation market, as falling demand has held back growth of the group’s other main businesses, magazine and newspaper distribution in the UK.
However, today’s news and subsequent decline has pushed Menzies down to an attractive valuation of only 6.7 times forward earnings. That being said, the underperformance of the group’s aviation division this year will hit profits, although analysts only believe that this will crimp earnings by around 10%.
Further, the company’s shares support a dividend yield of 7.2% at present levels. The payout is covered two-and-a-half times by earnings per share.
Output falling
Centamin disappointed investors today by lowering its full-year output forecast. The company now expects that full-year production at the Sukari gold mine will be in the region of 370,000 to 380,000 ounces, down from 420,000 ounces as previously forecast.
Management expects the operating cost per ounce of gold produced to remain constant for the year at $700 per ounce.
Despite this lower-than-expected full-year forecast, Centamin did reveal that it is expecting to deliver record quarterly gold production at the Sukari mine during the fourth quarter. On an annualised basis, this production will be in the region of 450,000 to 500,000 ounces.
At present levels, and according to current City forecasts, Centamin currently trades at a forward P/E of 7 and is in line to support a dividend yield of 2.2% next year.
Profit warning
Stock Spirits, the biggest vodka producer in Poland and the Czech Republic also warned on profit today.
The group noted that due to an increase in competition and excise duty, margins were falling. As a result, management now expects full-year earnings before interest tax depreciation and amortisation to be €5m to €10m lower than current expectations.
Unfortunately, today’s warning has sent Stock Spirits’ share price charging lower. At time of writing the shares have fallen around 23% and it’s easy to see why.
Indeed, before today’s warning Stock Spirits was trading at a forward P/E of 17.3, which did not leave much room for disappointment. Now, the group is trading at a more reasonable forward P/E of 13.4; however, with earnings expected to come in below expectations this year, these forecasts are likely to be revised lower.