ii view: cider maker C&C proves popular after latest update

A stable of famous drink brands and a leading distributor to the UK hospitality sector. Buy, sell, or hold?

Full-year trading update to 28 February

ii round-up:

Alcoholic drinks maker and distributor C&C Group (LSE:CCR) today flagged an expected rise in both sales and profit as it continued to recover from the pandemic. 

The maker of Magners and Bulmers expects revenues for the full year to the end of February to rise by 18% to €1.69 billion, with volumes up 4%. Operating profit is forecast to rise to €84 million from the prior year’s Covid-hit €48 million. 

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Shares in the FTSE 250 company rose by more than 2% in UK trading having come into this latest update down 27% over the last year. That’s similar to the fall in pub operator Wetherspoon (J D) (LSE:JDW), although better than the 36% retreat seen at premium tonic maker Fevertree Drinks (LSE:FEVR). The FTSE 250 index itself is down by 11%. 

Along with drinks including Tennent’s, C&C is also the leading drinks distributor to the UK and Irish hospitality sectors. 

In mid-January, C&C highlighted the hinderance which both consumer spending pressures and the impact of rail strikes was having on reducing inner city footfall, lowering its profit hopes by around a tenth. 

Nonetheless, both Bulmers and Tennent’s had continued to grow category share according to a recent industry survey. 

The performance also came despite some disruption caused by the start of a significant technology project made in its UK operations to push a digital transformation and optimisation of the business. 

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Cash generation had aided a reduction in net debt to around €150 million from €271 million at the end of the previous year, lowering its leverage multiple to 1.3 times from more than three times previously. 

It intends to restart dividend payments following its annual results on 24 May and plans then to assess the potential for further shareholder returns thereafter.

ii view:

Started in 1935, C&C today has its own and contracted manufacturing operations in both Ireland and Scotland. Headquartered in Dublin, it employs over 2,500 people. Alongside its core beer and cider brands, it also produces craft ciders and beers such as Orchard Pig, Heverlee, Menabrea and Five Lamps. Exports of Magners and Tennent’s go to over 40 countries worldwide. Its distribution brands include Matthew Clark and Bibendum. The UK generates most of its sales at around 83% with Ireland a further 15% and international the balance. 

For investors, disruption following the pandemic has been partly replaced with hinderances from strikes hitting travel. A cost-of-living crisis also continues with interest rates rising, while elevated costs including those for transportation and raw material prices are also an issue. Rivals such as Britvic (LSE:BVIC) and Diageo (LSE:DGE) also offer great geographical diversity. 

On the upside, a broad recovery from the pandemic is being seen, strong brands sit alongside some diversity of operations given both brewing and distribution, while debt has been reduced and a return to shareholder returns is now pending. 

On balance, and with the consensus analyst estimate of fair value at over 190p per share, more speculative investors might have C&C on their watch lists. 

Positives: 

• Strong brand names
• Expected return to dividend payments

Negatives:

• Uncertain economic outlook
• High dependency on the UK & Ireland

The average rating of stock market analysts:

Strong buy