While the consumer environment looks increasingly tough, Shares
believes drinks wholesaler-to-franchised off-licence operator Conviviality (CVR:AIM) will remain resilient.

Full year results (17 Jul) revealed a better-than-expected adjusted pre-tax profit, up more than 100% to £45.8m, upgrades to synergy guidance and news of strong momentum across the business in the nine weeks to 2 July.

Guided by CEO Diana Hunter, the £574.7m cap has been transformed over the last two years via the acquisitions of Matthew Clark, the UK’s largest drinks distributor to the on-trade, and wines and spirits wholesaler Bibendum. Sales in the year to April rose 85% to £1.56bn, reflecting a full year from Matthew Clark, a boost from Bibendum and healthy organic growth of 5.8%.

Consumers’ disposable income is being squeezed with inflation running ahead of wage growth but Conviviality’s sheer scale and reach across the UK drinks market mitigates this issue.

Supplying retailers, pubs, hotels, bars and restaurants with booze, food and tobacco, Conviviality’s competitive pricing, notably via
the Bargain Booze chain, gives the group the ability to serve cash-strapped consumers with affordable alcohol.

Free cash flow rose 349% to £51.2m last year while net debt of £95.7m was a beat versus previous guidance of £99m. Prized for its compelling cash generation, Conviviality raised the total dividend 33% to 12.6p. Investec Securities has upgraded its price target from 350p to 375p and forecasts a further dividend rise to 14p this year.

We’re positive on Conviviality at 339.7p for its earnings resilience, strong cash flows and 4.1% prospective dividend yield.

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