ii view: cider star C&C Group toasts a return to profit

Strong brand names and distribution contracts for industry giants. Buy, sell or hold?

First-half trading update to 31 August 2021

• Expects net revenue to be up 65% to €657 million (£558 million) compared to H1 last year
• Expects operating profit of €16 million (£13.6 million) compared to a loss of €12 million in H1 last year
• Net Debt of €246 million (£209 million) at end of August 2021

Chief executive David Forde said:

“Despite sector challenges, our business has shown its inherent strength and cash generation capability in the first half of FY2022. 

“We continue to invest in our brands, most notably with the recent launch of multi-channel advertising campaigns for our iconic Tennent’s, Bulmers and Magners brands. Our focus remains on building a better business by further developing our brand and system strength, while continuing to navigate the near-term capacity constraints our industry faces.”

ii round-up:

Magners, Bulmers and Tennent’s maker C&C Group (LSE:CCR) today reported a return to first-half profit as bars and restaurants reopened following pandemic lockdowns. 

The maker and supplier of beverages to hospitality outlets across the UK and Ireland expects to generate an operating profit of €16 million (£13.6 million). That’s up from a loss of €12 million in the Covid hit first half of last year, although still down from 2019’s pre-pandemic interim profit of €66 million (£56 million). 

C&C Group shares rose by more than 3% in afternoon UK trading, bringing their gain since pandemic market lows in March 2020 to over 60%. Shares for Guinness and sprits maker Diageo (LSE:DGE) and soft drinks company Britvic (LSE:BVIC) are both up by around 55%. Premium mixers maker Fevertree Drinks (LSE:FEVR) is up over 150%. 

Like Fevertree, C&C Group’s home drinking, or off-trade, sales continued to perform well, with its Bulmers brand growing market share. Unlike Fevertree, C&C’s in-house distribution operations and long-term contracts had left its largely insulated from the shortage of HGV drivers.  

Sales for the first half until the end of August are expected to rise by 65% to €657 million from the interim period last year, although that’s still down on the €896 million (£762 million) achieved pre-Covid. 

C&G Group has manufacturing operations in County Tipperary, Ireland; Glasgow, Scotland; and Vermont in the US. Operating under the Matthew Clark, Bibendum, Tennent’s and C&C Gleeson brands, it supplies over 24,000 outlets in the UK and Ireland and also distributes for other major beverage companies such as Anheuser-Busch InBev (EURONEXT:ABI) – owner of the Budweiser brand.

First-half results are scheduled for 28 October. 

ii view:

Headquartered in Dublin, C&C's other group brands include Heverlee, Menabrea, Five Lamps and Orchard Pig. Its makes and runs a portfolio of craft cider brands in North America and exports its Magners and Tennent’s brands to over 60 countries worldwide. It also owns a minority investment in the Admiral Taverns tenanted pub group.  

For investors, pandemic uncertainty cannot yet be totally ignored. Factors outside of its control such as the weather and the timing of sporting events also need to be remembered. Health issues and minimum unit pricing in the likes of Scotland also warrant consideration. And a dividend payment has not been declared since late 2019. 

But a recovery from the pandemic is unfolding. The return of a dividends could soon be seen, and C&C remains on target to deliver the €18 million (£15 million) in annualised cost savings announced in May 2021. In all, while some caution looks sensible, strong brands and a significant distribution operation make this a popular stock to own long-term.  

Positives: 

• Strong brand names
• Exclusive Irish distribution of Budweiser and Bud Light

Negatives:

• Less than 5% of sales from outside the UK and Ireland
• Halted dividend payment

The average rating of stock market analysts:

Buy