Good morning!

There are 3 profit warnings I want to comment on today. Is this a sign of a worsening economy? Not really, as all 3 are companies with existing or previous problems, so for the time being anyway I'm still fairly sanguine on the outlook for the UK economy (not sure about overseas though).

So let's take a look, in order of magnitude of today's share price falls.


Hornby (LON:HRN)

Share price: 39.6p (down 51.1% today)
No. shares: 55.0m
Market cap: £21.8m

Just a bit of catch-up first;

I reported here on 18 Jun 2015 about Hornby's £15m equity fundraising at 95p, and how amazed I was that it had been possible to raise fresh funding in what was effectively a rescue refinancing, to get the bank off the hook. Sure enough, the investors who backed that 95p fundraising are looking unwise now, and indeed looked unwise at the time too.

In my report of 12 Aug 2015 I noted the non-specific but generally positive-sounding trading update, and the move from the main listing, to AIM (a sensible move for a company of this size, in my view), concluding that the shares (at 107.7p) were too high, given that the turnaround was not cemented yet. Risk:reward was all wrong at that price - with shareholders being asked to pay up-front for what was then only a tentative turnaround.

Interim results on 8 Dec 2015 look pretty awful, I didn't report on them at the time, but am just looking at them now. It was clear from the interim numbers that the turnaround plan was not working, and once again Hornby slipped into losses - £3.4m for H1, and that's before adjustments, exceptionals, etc. Once again however, management peppered the narrative with optimistic noises about the outlook.

Profit warning - here we are today, and it's clear the wheels are coming off. Clearly a serious profit warning, to have triggered a fall in share price of over 50% today, on top of the drift downwards in price since Aug 2015.

UK sales performance seems to have fallen off a cliff in Jan 2016, which looks very strange to me;

In the UK the Group saw a strong sales performance in the key November and December period as sales opportunities were maximised in the run up to Christmas. Like for like sales in this period…

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