Hotel Chocolat – premium value worth paying

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Hotel Chocolat – premium value worth paying

Those Mayans knew a thing or two! Some 3,500 years ago they identified ‘xocolati’ as a very special drink. Made out of crushed cocoa, chilli pepper and cornmeal – they called it ‘bitter water’.

Some 2,900 years later the Aztecs also realised that cacao had special properties, with Montezuma, the Emperor of Mexico, said to drink some 50 goblets daily – even the Aztec army were big consumers.

Then the Spanish came along, and the conquistadors presented it to the Spanish court. Chilli pepper was dropped and sugar was added, the cold drink became a hot drink and hot drinking chocolate came into being. Then the 1700s saw chocolate drinking houses spread across Europe and eventually to London.

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The process of making hot chocolate improved such that by the 1800s chocolatiers were taking 25 minutes to make a velvet-like drink. The Mayans used to transfer from pot to pot their liquid and by doing so create a ‘foam’.

Now Hotel Chocolat (LON:HOTC) have created a £99 ‘Velvetiser’ that takes just 2.5 minutes to make perfect hot chocolate – that piece of kit has, until a few days ago, only been available online, but it is now being sold across the company’s retail operations.

Established some 26 years ago, Hotel Chocolat was a very early e-tailer selling chocolates online. It was not until 2004 that bosses Angus Thirlwell and Peter Harris opened their first Hotel Chocolat shop in North London.

Today the company, which went public in 2016, has some 118 stores across the UK and in Ireland. And from just selling chocolates in so many different forms and tastes the company is now pushing its special retail format of combining a shop and a café together in its new locations – it opened 14 new stores in the first half of the current year.

It has three retail boutiques in Copenhagen, as well as a luxury hotel, restaurant and spa on its 250-year-old cocoa plantation in St Lucia. It also has a Hotel Chocolat in the Sogo department store in Hong Kong and franchise operations in Scandanavia and Spain.

The interim results to end December saw the luxury chocolate retail group push sales up 13% to £80.7m and pre-tax profits up 7% to £10.8m. The margins were impaired by the costs of setting up two new stores, in New York and in a joint venture in Tokyo; however, both are said to have done very well on and since their recent launches.

In the second half of this year the company has Valentine’s Day, Mother’s Day and Easter as impactive retail events.

Between 2015 and 2018 sales rose from £81.07m to £116.33m, whilst pre-tax profits rose from £2.93m to £12.71m, giving earnings of 8.8p per share.


For the current year to end June 2019 broker estimates suggest that sales could increase to £128m generating £13.8m pre-tax profits, worth some 9.75p in earnings per share.

The coming year is expected to generate sales of £141.2m and pre-tax profits of nearly £15.2m, with earnings coming out at close to 11p per share.

Hotel Chocolat is another ‘quality’ brand that has the potential to develop still further upon its UK success to date. The international market is wide open to it, and as long as such developments are carried out sensibly and at a steady pace, I do see very much greater scope for improved sales and margins.

I am not at all put off by the massive ‘above the market average’ premium in buying the shares at around the current 340p price level. They have been as high as 402p in the last year and could well be above that price again within the next year.

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