MARKET REPORT: Hotel Chocolat takes hit with second profit alert

Investors know things will go bad when the British stop treating themselves to chocolate.

Hotel Chocolat was once a darling of the small cap market, named in the same breath as fancy tonic maker Fevertree (flat at 1250p).

At its peak, investors rushed to buy a piece of the action when charismatic founder and CEO Angus Thirlwell vowed to make chocolate exciting again.

He said in 2016: ‘When we started, chocolate in England was extremely boring and there was just no innovation or excitement about it. We knew the ingredients had to be the best.’

He was so passionate that Channel 5 aired a two-part documentary titled Inside Hotel Chocolat in 2019, followed by a second season a year later. But life is very different now and the cost of living crisis has taken the shine off Thirlwell and the company.

Bad taste: Hotel Chocolat was once a darling of the small cap market

Hotel Chocolat yesterday issued its second profit warning in two months against a sour background of skyrocketing inflation and wage and cocoa costs. It even had a rotten Easter with sales ‘lower than expected’.

As a result, the Hertfordshire-based company said it will fall short of current earnings forecasts.

In fact, its performance has gotten so bad that some brokers think it could be a takeover target.

One broker, who wished to remain anonymous, said: ‘I wouldn’t be surprised if it’s on the radar [chocolate rivals] Nestle or Ferrero, especially given the low valuations of companies in London at the moment.’

Shares fell 17.3 percent, or 24 pence, to 115 pence.

Of the blue chips, online grocer Ocado was the biggest drag on the index, falling 5.3 percent, or 30.2 pence, to 537.6 pence, as speculation that it could be circled by Amazon began to take off.

The FTSE 100 fell 0.5 percent, or 40.16 points, to 7461.87 as it recorded its fifth consecutive day of losses. The FTSE 250 fell 1.5 percent, or 265.64 points, to 18062.33

The main index did not have a single positive session all week for the first time since October 2020, before the discovery of a Covid-19 vaccine sparked a rally in global stock markets.

Investors flocked to safe havens, especially Big Tobacco.

British American Tobacco added 1.4 percent, or 35.5p, to 2625p, and Imperial Brands gained 1.1 percent, or 18.5p, to 1772.5p.

Imperial Brands was also helped by a new contract. The company has bought 65 million pounds of nicotine pouches from Canada’s TJP Labs. The tobacco group – which includes Davidoff and Gauloises – said it will relaunch the pouches in 2024 under a new brand.

“While it will take time to build our presence in this category, the proposal has passed a strong test with consumers,” said CEO Stefan Bomhard.

Investors always support cigarette companies during downturns, as consumers smoke more during recessions. But once again it was higher inflation and interest rates that scared the hell out of markets.

Airlines are particularly hard-hit as travel is expected to be the first sector to be hit if mortgages continue to rise.

IAG, which owns British Airways and Aer Lingus, lost 4.2 percent, or 6.9 pence, to 158.95 pence, Ryanair fell 2.5 percent, or €0.41, to €16.27 and Easyjet fell 4.7 percent, or 23.2 pence, to 472 pence.

The fear of more expensive mortgages also weighed on the big housebuilders.

Persimmon lost 4 percent, or 44.5p, to 1059p, Redrow dropped 3 percent, or 13.6p, to 439.2p, and Berkeley dropped 2.6 percent, or 99p, to 3773p.

Energy giants also took a hit as Brent Crude fell amid concerns that interest rate hikes could undercut demand for oil. BP lost 1.2 percent, or 5.35p, to 454.65p and Shell fell 0.6 percent, or 15p, to 2318.5p.

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