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The drinks group offers an attractive 4.8% prospective dividend yield and is starting to look much healthier
Thursday 08 Nov 2018 Author: James Crux

Irish brewer C&C (CCR), the premium drinks company which makes and distributes brands including Bulmers, Tennent’s and Magners, looks an appealing pre-Christmas value tipple at €3.34.

Shares has previously been lukewarm on the beverages stock, but C&C is at a turning point following the acquisition of Matthew Clark and Bibendum (MCB) out of the ashes of Conviviality and with other parts of the business making palate-pleasing progress.

The Dublin-headquartered cider, beer, spirits and soft drinks play is a new position in investment trust Fidelity Special Values (FSV), managed by value-contrarian Alex Wright.

Buying unloved companies and holding them until their potential value is recognised by the wider market, Wright was attracted to C&C following its acquisition of drinks distributor Matthew Clark, transforming a previously struggling UK business.

C&C has made progress in stabilising the previously distressed MCB, with customer service levels normalising, suppliers repaid and the UK taxman (HMRC) paid all overdue balances.

Half year results (25 Oct) included signs of positive progress in C&C’s core business, with net revenue up 6.4% and operating profit 4% ahead in the six months ended 31 August; boosted by balmy weather and the World Cup, plus Bulmers, Magners and Tennent’s each increased share in their key markets.

Excitingly, C&C’s distribution deal with AB InBev has given its cider portfolio a stronger route to market into UK retailers.

As well as boasting an earnings boosting minority stake in the Admiral Taverns tenanted pub group, C&C makes US craft cider brand Woodchuck and recently bagged the exclusive rights to distribute leading Chinese beer Tsingtao across Ireland and the UK.

For the year to February 2019, Shore Capital forecasts adjusted pre-tax profit improvement to €92.2m (2018: €79.2m), rising to €105.7m in the following year.

Besides the competition, one risk to consider is net debt of €278.9m, equating to a net debt-to-EBITDA ratio of 2.1 times.

Yet C&C is generating strong free cash flow and targeting 2-times leverage by the end of full year 2020.

Shore Capital forecasts a 15.3c dividend for this financial year, rising to a 16.1c shareholder reward the year after. On next financial year’s 29.5c earnings per share estimate, a prospective price-to-earnings ratio (PE) of 11.3 leaves re-rating scope and C&C also offers a juicy prospective dividend yield of 4.8%. (JC)

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