- Key brands continue to take market share
- Drinks maker to restart dividends
- But earnings come in at low end of guidance
Dublin-headquartered drinks group C&C (CCR), the maker of Magners and Bulmers ciders, expects to deliver a solid 18% rise in revenues for the year ended 28 February 2023 and resume dividend payments, news that sent the shares bubbling up 2.7% to 154p.
However in a mixed pre-close update, the FTSE 250 firm conceded full year earnings will be at the low end of guidance given in January due to a cocktail of the cost of living crisis, rail strikes and difficulties rolling out a recent technology project.
DRINKS GROUP TO RESUME DIVIDENDS
The premium drinks play behind cider brands Magners, Bulmers and Orchard Pig, as well as beer brand Tennent’s, plans to reinstate the dividend with the full year results in May.
C&C said it will also ‘evaluate the potential for further capital returns to shareholders in due course’ following robust cash generation from the beverages business, which has significantly reduced net debt to roughly €150 million, ahead of expectations and down from €271 million a year ago.
BUT MIXED NEWS ELSEWHERE
Investors raised a glass to C&C on the welcome dividend resumption news, but share price gains were capped by mixed progress elsewhere.
While C&C expects to report sales of almost €1.69 billion for the year to February 2023, up 18% year-on-year including volume growth, the company guided to operating profit of €84 million, up from €48 million in the prior year but at the low end of the previous €84 million to €88 million guidance range.
As C&C, which is also the UK and Ireland hospitality sector’s number one drinks distributor through brands including Matthew Clark and Bibendum, explained, this weaker than expected outcome reflects ‘a number of factors, including the previously noted softer than expected Christmas trading and the impact of the various strikes in the UK’.
In February, C&C began a significant technology project in its GB operations, ‘a key step in the digital transformation and optimisation of the business’, but the implementation phase is taking ‘longer than originally envisaged, with some consequent impact on service and profitability’.
The good news is service levels have largely returned to normal levels and despite a ‘challenging trading backdrop’, C&C is pleased with the performance of core brands Bulmers and Tennent’s, which both continue to take market share.
THE SHORE CAPITAL VIEW
‘We have previously highlighted a 2c per share dividend this year and the expectation of further deleveraging going forward,’ commented Shore Capital, which reiterated its positive stance on C&C.
‘With guidance for leverage of “less than 2x EBITDA”, we continue to see the balance sheet as a source of optionality, with the current backdrop likely to open up further opportunities down the line.’
The broker continues to see the key to the C&C investment case being ‘demonstrating the capability to drive branded volume growth, rebuild margins and the capacity to exploit its market leading distribution-led drinks model. The balance sheet brings further optionality.’
