LONDON (ShareCast) - (Sharecast News) - HSBC downgraded Vimto maker Nichols on Thursday to 'hold' from 'buy' and cut the price target to 1,480p from 1,550p.
The bank said that after a volatile year, the results of the refocusing are paying off but inflation has moderated the upside.

"We feel pricing action to offset inflation is possible across all three businesses but it may require caution and may not be immediate," HSBC said. "Price increases at Vimto UK may be tricky and subject to positive competitive actions: here Nichols is a strong N#2 player in concentrates and does not have category pricing power, though other non-pricing strategy may be of value.

"In international markets the company supplies concentrate and here taking pricing may be somewhat easier; however, these markets look very fragmented and with a lower income consumer base in Africa and the Middle East that is potentially more price sensitive, price elasticity must be taken into account."

HSBC said it reckons that taking prices up in the Out of Home category is easier as the business deals with a captive audience that is relatively insensitive to prices.

"However, as OOH supply contracts generally reprice once a year it may take time to fully recovery inflation from pricing."

HSBC said Nichols is not currently in a position to recover from inflation too quickly and in 2022 will prioritise top-line growth to operating margins.

"On this basis we see the shares lacking direction until visibility on a full recovery of margin improves," HSBC said, hence the rating downgrade.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE