Searing heat across the British Isles will be cheered by soft drink, cider and beer suppliers, if not by flustered commuters and office workers. Unfortunately for Magners and Bulmers cider maker C&C (CCR), the heatwave has arrived too late to salvage a particularly soft first quarter performance.

Click here to read the Dublin-based company's trading update in full, but in short, weak sales in Scotland and Ireland are a the root of a problem that has left investors nonplussed and the share price flat at €3.45.


These core markets were worth 85% of group earnings before interest and tax (EBIT) last year, so a prolonged spell of wet and cold weather has not been welcome. May was a particular damp squib, trends that underscore the wider beverages sector's weather-sensitivity. Cider is consumed throughout the year, but warm weather does tend to boost consumption.

To compound C&C's problems, the recent tightening of drink-driving regulation in Scotland had a negative impact on rural pubs, while ongoing grappling with the integration of Wallaces Express, Scotland's biggest wine and spirits wholesaler, is constraining progress north of the border.

Yet the update does contain a number of positives for the cash-generative beverages business. C&C Brands, the England and Wales business (effectively Magners and Gaymers ciders), had a good quarter with progress made with restructuring. In the US, craft cider brand Woodchuck witnessed subdued demand, yet the new Gumption launch (a Woodchuck brand extension) took up some of the slack. C&C also flags a good start to the year for exports everywhere from Asia and Europe to Australia.

Web chart - C&C - July 15

Shares in C&C are in the doldrums, reflecting a lack of organic growth, profit warnings and uncertainty over its ongoing restructuring, integration and consolidation initiatives. Analysts John O'Reilly and Declan Morrissey at Davy have an 'outperform' rating on C&C, commenting: 'Favourable weather in the key second and third quarters could yet offset the first three months performance,' the analyst says, before adding that 'it makes sense at this juncture to reduce our EBIT forecast, albeit modestly, to €111.4 million.'

Shore Capital drinks sage Phil Carroll sticks with his 'hold' rating, arguing 'at present the investment case lacks a catalyst to drive upside potential in the share price. However, a good summer in the group's key markets would help and we see downside support from the group's balance sheet, with a net debt to EBITDA ratio below one times, the share buyback programme and a relatively attractive income yield.'

Issue Date: 02 Jul 2015