ii view: cider maker C&C flags slowing consumer demand

14th September 2022 15:39

by Keith Bowman from interactive investor

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Shares in this FTSE 250 constituent brewer and distributor are down by more than a quarter year-to-date. Buy, sell, or hold?

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First-half trading update to 31 August

ii round-up:

Magners, Bulmers and Tennent’s maker C&C Group (LSE:CCR) today flagged a more than one-third increase in net revenues year-over-year as the pandemic faded, but also pointed to a recent slowing in growth given the wider consumer cost-of-living crisis. 

Net revenue for the six months to August are expected to have risen 35% to around €900 million, similar to the pre-pandemic first half of 2019, generating operating profit of between €52 million to €55 million, up from €16 million a year ago. On trade, or pub and restaurant sales had however slowed during the second quarter. 

C&C Group shares fell by 8% in UK trading having come into this latest announcement down about a quarter year-to-date. Shares for pub operator Fuller Smith & Turner A (LSE:FSTA) are down by a similar amount, while premium soft drinks maker Fevertree Drinks (LSE:FEVR) has fallen by around three-fifths during 2022. The UK focused FTSE 250 index is down almost a fifth year-to-date.   

Along with the brewing of its own beverages, C&C is also the leading drinks distributor to the UK and Irish hospitality sectors. 

In line with a previous goal, group net debt-to-adjust profit (EBITDA) is expected to materialise at roughly 1.5 times as of the end of August, aided by both the previous sale of its Admiral Taverns chain and the return of strong cashflows post the pandemic. 

A review by the board regarding a potential return of shareholder returns including dividends, halted during the pandemic, is expected to be made in the second half. 

First half results are scheduled for 27 October. 

ii view:

Headquartered in Dublin, C&C has its own and contracted manufacturing operations in both Ireland and Scotland. Alongside beer and cider brands Bulmers, Tennent’s and Magners, it also produces craft ciders and beers such as Heverlee, Menabrea, Five Lamps and Orchard Pig. Exports of Magners and Tennent’s go to over 40 countries worldwide. 

For investors, a cocktail of economic headwinds are faced, including elevated inflation, rising interest rates and a consumer cost-of-living crisis. Business costs generally are rising, including transportation and raw material prices, while the dividend payment, at least for now, remains suspended. 

On the upside, its brand portfolio is well known, with some diversity of operations including distribution. A recovery from the pandemic is ongoing, while a move to reduce debt has been made. 

On balance, a good deal of caution looks sensible currently given financially pressured consumers and the risk of recession. 

Positives: 

  • Strong brand names
  • Potential return to dividend payments

Negatives:

  • Uncertain economic outlook
  • Less than 5% of sales from outside the UK and Ireland

The average rating of stock market analysts:

Buy

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