C&C gloomy on second-half prospects

Investors in premium booze company C&C (CCR) will be raising a glass to their lips after the Magners, Bulmers, and Tennent’s maker confirmed it is going to start paying dividends again next year. These results would suggest that things are now looking cautiously up for the business, after the pandemic led to the collapse of its on-trade revenues, but while this was a strong first half the shares fell by 3 per cent on results day after management flagged challenging post-period trading. 

Net revenues fell by 5 per cent in September against last year – the group has come out of the pandemic and into an inflation and consumer cost of living crisis. Chief executive David Forde said that the outlook for the second half “is challenging with inflationary pressures on our own margins as well as those of our customers, and the cost of living pressures on the consumer environment in the near term”.

The first-half performance was far more encouraging. Booming net revenues were driven upwards by a chunky 25 per cent improvement in price and mix while volumes rose by 11 per cent. The operating margin hit 6 per cent, up by 380 basis points, with a distribution margin of over 4 per cent a standout.

House broker Numis said Christmas performance “will be the determining factor of near-term profitability” and argued that C&C is “uniquely well placed to leverage its position as the largest last-mile distributor of alcohol in the UK and Republic of Ireland”. The shares trade on nine times forward earnings, according to consensus forecasts from FactSet. This is an undemanding rating for a well-placed company which is making progress towards medium-term targets, despite tough headwinds. Hold.

Last IC View: Hold, 178p, 21 Oct 2020