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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (208)  | Author's Website |

Irish Brewer Could Be a Buyout Candidate

C&C's stock is cheap compared to its much larger competitors

July 27, 2016 | About:

C&C PLC (CCGGY) is an Irish brewer of beer and cider. The company has been hurt by increased competition and lack of interest in cider in the U.S. However, the stock has gotten pretty cheap and could portend a potential buyout as the industry continues to consolidate. Some of the company’s better known brands include Woodchuck Cider, Magmers, Hornsby’s and Tennent.

The company has 326.77 million shares and trades at a market cap of 1.2 billion euros ($1.322 billion). Sales were down in the most recent year by 3.1% to 662.6 million euros. It takes $1.10 to buy one euro. Adjusted earnings per share were 0.242 euro cents, and the stock trades at a price-to-earnings ratio of 15.2. The dividend was 0.1365, and the dividend yield 3.7%. The dividend was increased 18.7%.

A 77 million euros share buyback program was instituted. Free cash flow came in at a strong 113.4 million euros. The balance sheet is strong with 197.3 million euros in cash and 197.3 million euros in accounts receivable. The liability side shows 361.1 million euros in debt and 160.9 million euros in accounts payable.

Cider sales were down 10.4% in the second half in the U.S. Management blames alcoholic root beer sales, but I’m not convinced. I have seen Heineken (XAMS:HEIO) and Stella push into the cider arena as well. That’s my guess as to what has hurt sales in the U.S. C&C has contracted Pabst to market its products in the U.S. and San Miguel in Thailand. Cider penetration is 16% in the U.K., 13% in Ireland and 1% in the U.S. Management is always optimistic that that percentage will grow, but I’m doubtful.

What is impressive is that inroads have been made in Africa, Australia and New Zealand. This could potentially offset problems in the U.S. C&C started off its latest fiscal year with many brands up 20% in volume, but Brexit could hurt as over 50% of sales are denominated in the pound.

Major shareholders include Franklin Templeton with 10.7%, Southeastern Asset Management with 7.19%, and Third Avenue owns shares as well. I don’t see anything that could thwart a takeover. Last year, C&C had talks with Carlsberg and Spiritpub.

There aren’t many small players like C&C left. When Inbev and SAB merge, there will only be a handful of large brewers in the world. It could be an M&A situation. The stock is cheap. It trades at about two times sales. Its free cash flow yield is over 10%. That’s about as cheap as it gets for a brewer. The stock price is close to its 52-week low set last summer.

As a buyer of the stock, you get the 3.7% dividend yield. That’s great in today’s markets. When I first began writing on C&C, I was very bearish and for good reason — the stock has only dropped. At this price and valuation, it’s starting to get interesting.

Disclosure: We do not own shares in C&C but do own shares in Heineken.

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About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

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