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Cost of living crisis and Royal Mail strikes deter Moonpig consumers

Investors in Moonpig headed for the exit yesterday after the online card and gift group cut its revenue forecast for the year as the cost of living crisis and Royal Mail strikes deterred consumers.

In its half-year results, the FTSE 250 group said revenue for the year would be about £320 million, down from its previous forecast of £350 million, because of challenging trading conditions and “the continued macroeconomic uncertainty”.

Postal strikes and an unflattering comparison to the surge in sales during Covid-19 lockdowns meant revenues, excluding the experience part of the business, such as hot air balloon rides, fell 8 per cent to £131 million from £142 million in the six months to the end of October.

However, Nickyl Raithatha, chief executive, remained upbeat about the outlook. “We are a high-margin, cash-generative business with a large opportunity in front of us and a clear market leadership position,” he said. “Once the external environment stabilises we absolutely expect to resume our long-term growth trajectory.”

A reliable Royal Mail service is crucial for the business, which sells cards for special occasions. The Communication Workers Union has scheduled strike action over the past few months, with more planned during the Christmas period on December 9, 11, 14 and 15. Eight of these fell in the period covered by Moonpig’s half-year results.

Moonpig was founded more than 20 years ago by Nick Jenkins amid the fallout of the dotcom crash and traded successfully through the financial crisis. A former commodity trader, he named his company after his loathed school nickname. It was floated last year at a price of 350p with a £1.2 billion valuation in February by Exponent, which had owned it since 2016. The shares closed down 13½p, or 8.9 per cent, at 137¾p yesterday.

The number of orders from the card and gift businesses, Moonpig and Greetz, based in the Netherlands, dropped by 13 per cent to 16.9 million from 19.5 million. Despite the fall, the company restated its profit target for the full year of between £85 million and £88 million because of the size of its profit margin. Its strategy to navigate the uncertain economic outlook is focusing on the higher-margin cards business and offering a cheaper range of gifts to customers.

Moonpig’s pre-tax profits halved in the first six months to £9.1 million from £18.7 million in the same period last year, partly driven by increased interest payments on its purchase of Red Letter Days and Buyagift in July as it expanded into the gift and experiences market.

David Reynolds, analyst at Davy Research, said: “UK-centric business models are caught in the downdraft of a recession and what that does for consumer sentiment, the rising cost of living and their ability to spend.” He said the share price fall came as investors were spooked by the company’s rapid change to its revenue target, which it restated only in September.

In a note, analysts at Peel Hunt said: “The reasons for the downgrade are out of Moonpig’s hands and one-off in nature.”

Raithatha insisted that the online greeting card business was still at an early stage. “The long-term trend shows that clearly the market continues to move online and the numbers are still low — we think it is about 16 per cent penetration in the UK,” he said.

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