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Why Magners maker C&C can cope with unprecedented cost inflation
Shares in Dublin-headquartered drinks business C&C (CCR) frothed higher following a positive trading update (16 Mar) from the maker of everything from cider brands Magners, Bulmers and Orchard Pig to beer brand Tennent’s and Tipperary Pure Irish Water.
Investors toasted evidence of continued recovery in its markets and a significantly reduced debt pile. Indeed, Shore Capital noted C&C can not only broaden its drinks portfolio and gain greater market share, but also recover cost inflationary pressures and return profitability to pre-Covid levels of €120 million in the year to February 2024.
HOSPITALITY REOPENING BOOM
C&C, which also owns Matthew Clark Bibendum, the UK’s largest independent drink distributor to the on-trade, is benefiting from the lifting of Covid restrictions and the reopening of the UK and Ireland hospitality industries.
The FTSE 250 constituent has guided to an operating profit of between €45 million and €47 million for the year to February 2022. While this was below the €50 million to €55 million range given at October’s interim results, the guidance was ahead of the €43 million Shore Capital was looking for with the December and January volume impact from Omicron proving less bad than feared.
‘In January 2022, restrictions in our core markets of the UK and Ireland were eased and we are pleased to see positive trading in the on-trade,’ enthused C&C.
‘We were back trading with 81% of direct delivered outlets in February 2022 versus February 2020, with corresponding volumes at 68% and momentum building as outlets continue to re-open.’
LEVERS TO PULL
The drinks industry is experiencing unprecedented cost pressures, only exacerbated by the conflict in Ukraine, but C&C insisted it is ‘afforded a degree of protection through our successfully executed €18 million cost reduction plan, our recent price increases and input cost hedging’.
Shore Capital sees further price increases on the cards ‘were recent elevated costs not to unwind’, with C&C’s branded drinks conferring pricing power on the business.
Forthcoming full year results and an accompanying capital markets day (17 May), where the company will update on the market recovery, set out the opportunity for its distribution-led model and the potential to pass on higher costs, offer the next potential re-rating catalyst, with C&C languishing on 11.3 times Shore Capital’s €0.23 (18.9p) earnings forecast for 2024.
Shore also notes that C&C’s leading distribution business should benefit thanks to its scale and range from increased environmental considerations, with an emphasis on large, less frequent deliveries.
The company’s broad portfolio of beverages should also, in Shore’s view, stand it in good stead with a consumer which is increasingly ‘promiscuous’ in its brand choices.