ii view: share slump at cider maker C&C

Pandemic disruption has now been replaced by other challenges. We assess prospects. 

Second-half trading update

• December revenues up 20% year-over-year
• Now expects full-year operating profit of €84-€88 million

ii round-up:

Despite a sales recovery from last year’s pandemic impact, alcoholic drinks maker and distributor C&C Group (LSE:CCR) today flagged rail strike disruption and the cost-of-living crisis as hindering its performance. 

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Revenues for the month of December rose by a fifth compared to the Covid dampened December 2021, but full-year operating profit is now expected to come in at between €84 million and €88 million. That’s down around a tenth versus analyst estimates. 

Shares in the FTSE 250 company fell by more than 9% in UK trading having come into this latest update down by more than a fifth over the last year. Soft drinks maker Britvic (LSE:BVIC) has fallen by just under a fifth over that time, as has the FTSE 250 index. Premium tonic maker Fevertree Drinks (LSE:FEVR) has more than halved. 

Along with making drinks such as Magners, Bulmers and Tennent’s, C&C is also the leading drinks distributor to the UK and Irish hospitality sectors. 

Management for the Dublin headquartered company pointed to both consumer spending pressures and the impact of rail strikes on reducing inner city footfall in denting its performance. Festive bookings for the hospitality sector were down by close to a third compared to the pre-pandemic 2019.

C&C reiterated its determination to drive efficiencies, with strong cashflows helping it maintain its previous capital allocation objectives. At its first-half results in late October, the company highlighted plans to announce a dividend alongside full-year results. Payouts had been suspended since the pandemic. 

Annual results are likely to be announced in May. 

ii view:

Started in 1935, C&C today 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. Its distribution brands include Matthew Clark and Bibendum. 

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For investors, a cost-of-living crisis and transport disruption cannot be ignored. Business costs generally remain elevated, including transportation and raw material prices, while revenues from beyond the UK and Ireland totalled less than 2% in its last financial year.  

Favourably, its products include several strong brands. Some diversity of operations also exists given both brewing and distribution, moves to reduce debt have been made, while the consensus analyst estimate for its expected dividend payment stands at over 3%. 

For now, and while the prospect of dividends should lend support to the share price, investors more generally may want to watch how events unfold. 

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