Bargain Booze-to-Wine Rack owner Conviviality Retail (CVR:AIM) looks well placed following completion (7 Oct) of the reverse takeover of drinks wholesaler Matthew Clark. Growth prospects have been transformed and Shares believes a series of earnings upgrades lie ahead.

The £200 million Matthew Clark deal is a great strategic fit for Conviviality, the alcohol-led franchised off-licence chain geared into structural market growth in both the convenience and discount sectors. Highly-complementary, the deal has created an enlarged group boasting annual sales north of £1.1 billion and operating in both the on-trade (pubs, hotels, restaurants) and off-trade drinks markets.

Significantly, the potential revenue and cost synergies arising from the deal, giving Conviviality enhanced buying power, stronger supplier relationships and the ability to benefit from Matthew Clark’s nationwide distribution network, could be material. Though the ambitious takeover was debt and equity funded, strong cash generation gives enlarged Conviviality significant scope to deleverage.

Investec Securities has a ‘buy’ rating and 230p price target for Conviviality, implying potential upside of 25%. For the year ending 30 April 2016, the joint broker forecasts £21.1 million worth of pre-tax profit for earnings of 13.8p and an 8.5p dividend. By 2017, profits are forecast to fizz higher to £34.7 million, translating into 17.2p EPS and a likely 8.8p shareholder reward.

At 184.5p, Conviviality offers an attractive 4.6% dividend yield and scope for forecast upgrades to drive a re-rating.