Hotel Chocolat Group PLC 

Hotel Chocolat Group PLC (LON: HOTC) is an FTSE AIM 100 index listed Company. It is an omni-channel retailer and chocolatier. It produces and sells cocoa and premium chocolate related products.

Investment Rationale – SELL at GBX 448.00 

• Despite reporting decent growth in top-line revenue and switching back into bottom-line profitability during FY21, HOTC could pay any dividends for the year.
• On the liquidity front, the Company’s current ratio and quick ratio remained lower than the respective industry median of 1.53x and 1.00x during H1 FY21.
• According to the Confederation of British Industry (“CBI”), the September 2021 UK retail sales witnessed the lowest levels since March 2021 due to supply chain constraints.
• HOTC is trading very close to the 52-week high, making it difficult for the stock price to show any further upside potential.
• From a technical standpoint, the 14-days RSI of ~81.79 indicates a correction in the near term.
• Also, the stock price is hovering around the upper Bollinger band, suggesting a decline over the short term.

Key Risks

• The new territories increase multiple risks, which then increases business complexities.
• The resurgence of Covid-19 could impact the supply chain, putting additional pressure on the margins of the Company.
• Lower consumer confidence and low-income levels could change the spending habits of the consumers, affecting demand for the Company's product.
  

Financial Highlights for the 52 weeks ended 27 June 2021 (reported on 5 October 2021)

(Source: LSE Website) 

• The revenue of the company increased by 21% to £164.6 million, driven by the strong performance of the digital segment.
• The Gross Margins of the company improved by 90 basis points to 61.8%.
• The company launched Hotel Chocolat Gentle Farming Charter, a major investment in cacao farming with the goal of enabling every farmer that supplies to them.
• HOTC has a strong financial position, with net cash of £15.8 million and liquidity headroom of £45.8 million as of 26 September 2021.
  

One Year Share Price Chart 

(Data Source: REFINITIV, Analysis done by Kalkine Group) 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion 

Post the opening of channels, the Company has seen an improvement in the outlook despite continuing uncertainties amid Covid-19. The management remains confident of the outperformance of its products and expects profit to outperform the desired benchmarks. The Company remains optimistic about the substantial growth opportunities in the US and Japan. Meanwhile, HOTC is currently trading very close to the 52-week high, providing an opportunity to book profit at the current levels. The stock made a 52-week low and a 52-week high of GBX 310.00 and GBX 475.00, respectively. 

Based on the overstretched valuations and weak UK retail sales during September 2021, we have given a "SELL” stance on Hotel Chocolat Group PLC at the current market price of GBX 448.00 (as of 06 October 2021 at 08:01 AM GMT+1), while we keep a track on the company’s next growth drivers. 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

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