Shares in international hobby products company Hornby (LSE: HRN) have soared by as much as 33% today after it announced the departure of its CEO Richard Ames with immediate effect. This follows the recent profit warning by the company, with it now expecting to report an underlying loss before tax of between 5.5m and 6m for the full year.
This is partly due to a disappointing performance over the New Year period thatsexpected to contribute a deterioration in trading profit of between 2.5m and 3m. As a result, theres a risk that Hornby will breach a covenant of its banking facility as early as March, which is clearly worrying news for the companys investors.
Although todays news has been warmly received by the market and Hornby is making progress with its restructuring plans, it appears to be a stock to watch rather than buy at the present time. There could be further challenges ahead in terms of its financial performance since theres no guarantee that trading will pick up moving forward. And with a new CEO to be found, as well as the companys unstable financial footing, there appear to be better options elsewhere.
While Vodafone (LSE: VOD) hasnt released a profit warning, its financial performance has been hurt in recent years due to its exposure to Europe. And with Vodafone being more exposed to Europe than ever following thesale of itsstake in North America-focused Verizon Wireless, as well as multiple European acquisitions, the slow growth of the eurozone has put its bottom line under a degree of pressure.
However, this is due to change since Vodafone is expected to increase its earnings by 19% in the next financial year. And with Vodafone expanding its product range through broadband services as well as investing in infrastructure, its long-term future appears to be rather bright. Add to this a yield of 5.5% and interest rates due to stay low over the coming years, andVodafone could prove to be a strong source of total returns.
Meanwhile Unilevers (LSE: ULVR) share price has also been held back by its geographic exposure. With it having a bias towards emerging markets and being focused on China for its long-term growth prospects, its shares have risen by just 3% since the turn of the year. That may sound like a strong performance relative to the FTSE 100 (which is down by 6% in the same period) but when you consider that Unilever trades at a discount to many of its global consumer peers, its future share price performance could be much better.
For example, Unilever has a price-to-earnings (P/E) ratio of 21.7 and with a peer such as Reckitt Benckiser having a P/E ratio of 24.6, theres upward rerating potential on offer. Add to this Unilevers excellent cash flow and sound balance sheet and it appears to offer a highly favourable risk/reward ratio for the long term.
Certainly, Chinese growth may disappoint in the short run and hold its shares back, but in the long run the growth of Chinas middle-income earners is likely to boost Unilevers sales and profitability.