- Consumer spending squeeze and rail strikes hit hospitality sales
- Profit warning triggers 5% earnings downgrade
- C&C continues to generate strong free cash flow
Shares in C&C (CCR) were the biggest FTSE 250 losers on Friday, falling 10.5% to 164.6p after the Dublin-headquartered drinks business served up news of disappointing trading in December.
C&C pinned the blame for subdued Christmas sales on the impact of the cost-of-living crisis on consumer spending as well as recent UK rail strikes, which reduced footfall in urban areas over the key festive period.
FESTIVE SALES GROWTH LACKS FIZZ
Premium drinks company C&C makes everything from cider brands Magners, Bulmers and Orchard Pig to beer brand Tennent’s and is also the UK and Ireland hospitality sector’s number one drinks distributor through brands including Matthew Clark and Bibendum.
Whilst C&C delivered 20% year-on-year sales growth in December, this reflected soft comparatives from the Omicron-impacted period in 2021, and the growth rate fell short of the 30% broker Shore Capital was looking for.
With consumer spending set to remain under pressure in the near term, C&C now expects to deliver year-to-February 2023 operating profit in the €84 million to €88 million range, well below consensus of around €95 million and Shore Capital’s €89.9 million forecast.
‘The middle of the range would be equivalent to a circa 5% cut in our current forecast,’ explained analyst Greg Johnson.
‘From a read across perspective, we would expect that city and metropolitan centres have been hit harder than suburban, noting Mitchells & Butlers (MAB) solid update across its broad estate.’
Despite challenges including the cost-of-living crisis and inflationary pressures, C&C insisted it will continue to operate ‘well within its stated leverage range (less than 2 times) and this coupled with our strong free cash flow generation will ensure that our stated capital allocation objectives are maintained’.
C&C will also ‘continue to review and drive efficiencies throughout our business while ensuring we deliver a market leading offering to our customers and consumers.’
ANALYST OPINION AFTER UPDATE
Shore Capital had assumed C&C would serve up a further €5 million increase in operating profit to €95 million for the year to February 2024, but that was before today’s disappointing update.
‘Given the backdrop, we would anticipate similar magnitude of reduction in operating profit to circa €90 million, albeit still showing year-on-year growth’, continued Johnson.
While the analyst remains cautious over the short term outlook, he doesn’t believe C&C’s current valuation of roughly eight times earnings before interest, tax, depreciation and amortisation (EBITDA) reflects ‘the progress the group is making’ and insisted ‘profitability can build over time as branded margins recover. We would see continued evidence of sustained market share growth in cider and premium beer as catalyst for a re-rating, whilst the balance sheet retains significant optionality.’
