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St Ives’ dividend is under threat
Investors tempted to take advantage of a 70% share price dive in printer and marketing services play St Ives (SIV) over the past year should beware further nasty surprises. We believe the company could cut or suspend its dividend when it reports half year results on 7 March.
The company issued its third profit warning in a year on 8 February when it revealed the loss of a contract to produce monochrome books for publisher HarperCollins.
Although the non-renewal of the contract will not impact results in the current financial year to July 2017, the following financial year’s sales are expected to drop £11m and adjusted earnings will be down £3.5m.
St Ives has been slowly reinvesting cash flows from its mature printing business over the years into a buy-and-build effort in the digital marketing space.
This initially seemed to pay off but in April 2016 the company was hit by clients cancelling or deferring significant projects. Exposure to an embattled groceries sector was a big factor behind another profit warning in January 2017.
Stockbroker N+1 Singer says the latest setback with HarperCollins ‘fundamentally changes the debt and dividend outlook’. Prior to the latest profit warning, analysts had expected 7.8p per share dividend for the current financial year, implying 13.2% yield on the current 59p share price.
N+1 Singer has now slashed its dividend forecast to 4p and suggests St Ives should sell or close some of its more troubled businesses.
There could be further bad news to come.
Steer clear at 59p. (TS)