Interactive Investor

ii view: cider maker C&C shares fizz higher

Pandemic disruption has been followed by challenges implementing a new computer system. We assess prospects.

19th September 2023 15:40

by Keith Bowman from interactive investor

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First-half trading update to 31 August

ii round-up:

Alcoholic drinks maker and distributor C&C Group (LSE:CCR) today pointed to a restoration of customer service levels as it resolved implementation issues for a new Enterprise Resource Planning system. 

Delivery times at its UK distribution business have returned to levels seen prior to the new system difficulties, with expected first-half operating profit of between €29 million and €31 million including most of the one-off earnings impact. However, that is down from €55 million a year ago. 

Shares in the FTSE 250 company rose by 5% in UK trading having come into this news down by around a quarter year-to-date. Premium soft drinks maker Fevertree Drinks (LSE:FEVR) is up by around 20% in 2023, Britvic (LSE:BVIC) shares are up over a tenth, while the FTSE 250 index itself is down almost 2%. 

C&C Group makes drinks including Bulmer’s cider as well as being the leading drinks distributor to the UK and Irish hospitality sectors. 

Overall sales for the six months to the end of August are expected to fall 1% year-over-year to €870 million. Own branded sales in both Scotland and Ireland were summarised as ‘encouraging’ with net sales revenue up 6%. 

As expected by management, group borrowings remain marginally above target given requirements to fix system issues, although they are expected to return to target come its financial year-end in February 2024. 

In May, C&C restored its dividend payment following its pandemic related suspension, declaring a full-year payment of 3.79 euro cents per share. Other forms of capital returns continue to be explored.

First-half results are scheduled for 26 October. 

ii view:

C&C brands include Tennent's, Magners, and Bulmer’s, along with 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. Geographically, the UK generates its biggest slug of its sales at just over 80%, followed by Ireland with most of the balance and international sales at under 2%. 

For investors, pandemic disruption has been closely followed by major challenges implementing a new computer system. Costs such as fuel for transportation remain elevated, factors outside of management’s control such as the weather can impact sales, while C&C lacks the geographical diversity of sales found at rival drink makers such as Diageo (LSE:DGE).   

On the upside, issues with its new system now look to be largely behind it. Strong brands sit alongside some diversity of operations given both brewing and distribution, plans to reset debt within management limits are being pursued, while there's been a return to dividend payments. 

It's been a difficult year for C&C which issued profit warnings in January and May. The company is still vulnerable to market forces, but while some caution still looks sensible, a consensus analyst estimate of fair value at over 200p per share might grab the interest of more speculative investors. 

Positives: 

  • Strong brand names
  • Diversity of operations

Negatives:

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

The average rating of stock market analysts:

Buy

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