A dramatic drop in Conviviality’s (CVR) share price on the back of these half-year numbers looks overdone to us. Admittedly, weakening margins never play well with investors in an increasingly price-competitive booze distribution segment, and a 30 basis point slip in the gross margin to 12.5 per cent resulted in a double-digit percentage fall in the share price. However, the margin contraction was made known to investors at the time of the last full-year results – and it needs to be set in context against costs associated with expanding the top line.
The group is winning more national account customers, but it must invest to cope with the increased demand and to build market share. The strategy is clearly working: first-half sales grew by a healthy 9 per cent overall, and by 7.9 per cent on a like-for-like basis. Even better, on an adjusted basis, cash profits grew by 1.7 per cent to £23.3m.
Chief executive Diana Hunter admits the full benefit of this shift in the business won’t be fully visible at the bottom line until 2019. An overhaul of back-end distribution systems and software should drive through efficiencies, says Ms Hunter, as should a recent organisational reshuffle, which made leadership teams more streamlined.
Analysts at Investec expect pre-tax profits of £53.5m for the year ending April 2018, giving EPS of 23.9p, up from £45.8m and 21p in FY2017.
| CONVIVIALITY (CVR) | ||||
| ORD PRICE: | 322p | MARKET VALUE: | £589m | |
| TOUCH: | 321-338p | 12-MONTH HIGH: | 432p | LOW: 249p |
| DIVIDEND YIELD: | 4.0% | PE RATIO: | 31 | |
| NET ASSET VALUE: | 114p* | NET DEBT: | 64% | |
| Half-year to 29 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 766 | 7.4 | 3.4 | 4.20 |
| 2017 | 836 | 6.4 | 3.0 | 4.50 |
| % change | +9 | -14 | -12 | +7 |
| Ex-div: | 15 Feb | |||
| Payment: | 16 Mar | |||
| *Includes intangible assets of £289m, or 158p a share | ||||
