Chocolate stocks fly

Hotel Chocolat, the chocolate maker inspired by David Bowie, has gone public – and the shares are a buy, says Alex Williams.

It was a “sweet” day for investors in London, says City AM. Luxury chocolate maker Hotel Chocolat has raised £55m in an initial public offering (IPO), with its shares jumping by nearly a third on its first day of trading.
The deal was timed to fit into the “chocolate calendar”, says co-founder Angus Thirlwell – coming just after Easter, but leaving a few months to prepare for Christmas.

The UK chocolate market is massive, estimated at $6.4bn, but investors have been starved of chocolate stocks. Thorntons was bought last year by Italy’s Ferrero Rocher, while Cadbury was swallowed by Kraft in 2010. Hotel Chocolat already outsells Thorntons, with more than 80 shops in the UK, but keeps its products off supermarket shelves, to preserve their cachet.

The business, however, has been through several different incarnations. It began as a mail order company, before opening its first shop in London in 2004. It has also traded under several different names, including Geneva Chocolates and Choc Express, a telltale sign that it operates in a faddish market, vulnerable to fast-changing tastes. Many of its hit products, including an Eton Mess slab and salted caramel vodka, also have a whiff of “here today” about them.
That need not matter, providing Thirlwell has his finger on the pulse. He’s branded himself as a hippy, rebuffing private-equity interest and citing David Bowie as an inspiration. “More cocoa, less sugar” is a policy of the firm, which has also issued “chocolate bonds”, yielding 7.3% (paid in chocolate bars), to retail investors.

Looking beyond his shoulder-length hair, Thirlwell is in fact deeply commercial. The bonds raised £6.9m. Thirlwell and co-founder Peter Harris have pocketed £43m from the IPO, while holding onto two-thirds of the stock. Hotel Chocolat runs a hotel on its plantation in St Lucia, popular with Cabinet ministers, but it’s no vanity project, selling two-week breaks for £10,000. Thirlwell’s father, meanwhile, was the brains behind Mr Whippy, a mass-market ice cream made of emulsifiers and pig fat.

Enthusiasm around the IPO has squeezed Hotel Chocolat to a rich-looking 27 times earnings, in line with cake shop Patisserie Valerie. The bet for investors is that Thirlwell’s brand is still in its early days. Indeed, £12m from the float will be used to open new shops and upgrade its website, to boost sales overseas. Thirlwell says he won’t get distracted by the success of the IPO and is purely focused on tasting new recipes. “We have opened the door to chapter two,” he says. Buy.

City Diary: FCA turns up the heat on Bakewell tarts

The City is piling pressure on cake and custard maker Premier Foods, the company behind Mr Kipling and its Bakewell tarts. Premier’s board rejected three informal offers for the company earlier this year by Maryland-based McCormick, which makes baking ingredients and spices. McCormick finally walked away from the deal and Premier’s share price dropped by nearly a third. Shareholders have been publicly unhappy, grumbling to the press. However, now the Financial Conduct Authority, the market watchdog, has added to the firm’s woes by opening a probe into unusual move-ments in Premier’s share price at the time of the approach. It has requested a list of people who were privy to inside information. The City is, after all, a leaky old ship. FCA data show that up to 30% of all takeovers in the UK see suspicious trading activity, though the figure fell below 14% in 2014 after criminal prosecutions were introduced.

Manchester United ended a bad year by evacuating its stadium last weekend after an erroneous bomb scare during its final Premier League match, costing an estimated £3m. But off the pitch, things are looking up. Ed Woodward, the former JP Morgan banker who now heads the club, has swung it from a loss to a profit, thanks to a spike in its broadcasting revenue and a new ten-year kit deal it has signed with Adidas. Listed in the US, Man United’s revenue has jumped 30% to £123m, although its shares have failed to make headway since manager Sir Alex Ferguson left the club three years ago.

Labour leader Jeremy Corbyn is winning few friends in the City. His shadow minister for the Square Mile, Richard Burgon, has been busy meeting City insiders, in an effort to forge a relationship, says Jim Pickard at the FT. But people sitting in on the meetings say they are uncomfortable to witness. “He just sat there, barely listening and left quite quickly.”