Davy Research |
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C&C
(GCC ID)
FY results due May 16th; H1 performance this year likely to be back-weighted
09 May 2012
Barry Gallagher
| Closing Price: | 363c | Rating: | Outperform | 30/06/09 |
FACTS: C&C will report FY results to end-February on May 16th.
ANALYSIS: C&C will report FY results to end-February on May 16th. The company guided at its IMS (January 17th) that it expects EBIT of c.€110m (Davy EBIT €111m). We estimate that the group will have c.€60m in net cash.
In GB cider, we forecast broadly flat revenue for Magners and a c.20% revenue decline for Gaymers, mainly due to the removal of loss-making activity. We expect Bulmers sales in Ireland to be down -8% (-6% price deflation), in line with the H1 trend. Despite the challenging top line in Irish cider, we expect earnings in Ireland to be only marginally down (-2-3%) with good momentum in the Irish beer business offsetting much of the decline in cider.
Cider exports underlying net revenue is expected to be up 20% with Australia and North America driving growth.
Tennent’s revenue is likely to be down 3-5%, but profitability is likely to be significantly higher (+20%). This is primarily a function of the exiting of loss-making deals in the Scottish off-trade, improvement in the route to market and share gains in the on-trade. The AB Inbev beer business is expected to continue to perform strongly.
Commentary on recent trading will be of interest. While we are unlikely to get Q1 volume data (March-May) until the mid-June IMS, we would flag that there is likely to be a large variance in Q1/Q2 performance. Q1 top-line growth will be challenging given the poor weather of late and the tough comps (Royal wedding, extra UK bank holiday and good weather). Conversely, Q2 (June-August) should be stronger (Euro championships, London Olympics, Diamond Jubilee and easier comps). In Q1 last year, Magners GB volumes rose strongly, up 14%, aided by the one-off benefits, but rose only +2.9% for H1, implying a Q2 slowdown. Bulmers volume rose +2.7% in Q1 last year, but declined -3.2% for H1, again implying that Q2 comps are easier.
Overall, we would expect a cautious tone, highlighting that in core markets the economic and competitive environment remains challenging and the likely back-weighted H1 performance. The market will be interested in any further developments on cash utilisation. Net cash will represent over 10% of current market cap by the February 2013f year end.
DAVY VIEW: We remain positive on the outlook for C&C. There is considerable room to grow the beer business profits in Scotland, Northern Ireland and the Republic of Ireland. These regional consolidated beer markets offer good profit and margin expansion opportunity. C&C's international cider division is growing 20% and we estimate that it will account for 8% of overall group EBIT in FY 2013f. Australian and US markets look particularly buoyant. MillerCoors, AB Inbev and leading craft brewer, Boston Beer Company, have all recently entered the nascent US cider market. This could be a catalyst for a step-change in category growth. Cider represents a miniscule part of the global long alcoholic drinks market. The scale of the opportunity for C&C if cider was to begin to resonate as a beer alternative in markets like the US is significant. GB premium cider continues to grow. However, new entrants, while helping to drive growth, are also increasing the competitive intensity. Magners looks to be holding share in the overall cider category. C&C is also using its spare production capacity in the UK to contract brew third-party cider, which will be beneficial to its bottom line. The group’s net cash position and strong free cash-flow presents an opportunity to improve growth through value-creating deals or to return cash to shareholders.