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Majestic asking investors for 'a lot of faith' - City analyst

Published:  16 June, 2015

A city analyst has said yesterday's year-end profits announcement by Majestic Wine has left investors being asked to "display a lot of faith" as the company looks to get back on track.

New Majestic chief executive Rowan Gormley outlined plans to turn around the company's fortunes including smaller stores for London, a hacking back of the existing store opening programme and investment in staff training.

Gormley's optimistic note for the future came as the company delivered a 22.5% drop in profits for the year to March 30.

Ken Odeluga, a senior market analyst at City Index, said: "Whilst Majestic Wine's like-for-like performance over the year of +1.9% would be the envy of many a grocery retailer, it has booked a pre-tax profit that is below even the downgraded guidance given in April.

"It said in April it expected to post £21 million, but in the event it managed £18.4 million a fall of 22.5% year-on-year.

"This leaves the investor trying to square the sales performance - and Majestic's reassurance that trading has strengthened at the start of the year - with the company's bid for inorganic growth by purchasing Naked Wines.

"The buy was Majestic's response to tightening supermarket competition that has inevitably weighed on margins.

"Naked's more emphatic international reach may provide the enlarged group with an advantage whilst it positions itself for a somewhat higher-bracket consumer.

"But investors are being asked to display a lot of faith in execution - sans dividend, until further notice - whilst deflationary, competitive and consumer discretionary sector risks have all been well-rehearsed over the last year."

City Index is a leading financial market spread betting, foreign exchange and derivative trading company.

Investec reaffirmed its "'buy" recommendation for Majestic and said profits were "in-line with downgraded numbers".

It added: "The strategic review confirms our belief that there are material self-help levers which can drive volumes, improve returns and unlock working capital inefficiencies.

"Profits will be held back short term as management test a number of initiatives and take the learnings to finesse its future investment plans. We remain excited about the Naked Wines business and see the longer-term growth potential of enlarged group as being undervalued."