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St. Ives – results expected to be at “top end” – but that is of previously heavily reduced expectations...

By Steve Moore | Thursday 10 August 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Marketing services group St. Ives (SIV) has announced results for its year ended 28th July 2017 “are expected to be at the top end of the range of current market expectations”. Sounds promising, but what are those expectations and their context?

The prior year saw 13% reduced adjusted earnings per share of 17.6p and there are forecasts for the year just ended of… circa 13p!

This particularly follows a January profit warning, which included an “increasingly competitive” Marketing Activation segment with “ongoing pressures within the grocery retail sector, the segment's largest single market” and that a process to replace cancelled and deferred Strategic Marketing work was “taking longer than previously anticipated”. Prior to this, earnings per share slightly higher than the prior year’s were forecast – and thus “top end of the range of current market expectations” should be seen in this context.

The shares had though been comfortably above 120p prior to the profit warning and, currently up approaching 20% today, are presently at 65p. The latest announcement notes improving Strategic Marketing trading, though Marketing Activation and Books margin pressures – with these being mitigated somewhat by cost reduction measures.

On an earnings basis though, the shares still look very cheap – but headings in the announcement of a concluding two sections remind there are significant other factors to consider; “Balance Sheet” and “Defined Benefits Pension Scheme”.

On the former, it is stated “we continue to look for opportunities to further strengthen the group's balance sheet following the recent sales of non-core properties” and on the latter, “the group has reached agreement with the trustees to increase the contributions to the scheme from £2.4m per annum to £3.0m per annum”.

These are thus areas to be closely looked at in the 3rd October-scheduled results announcement and, ahead of that, this is at best on the watchlist.

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