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Would Somebody Please Buy Out C&C?

Management is fixing up the company to look attractive to buyers

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Oct 28, 2016
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C&C Group PLC (

CCGGY, Financial) is an Irish-based brewer of beer and alcoholic ciders. Management has been doing the best it can to compete against the giant brewers. Eventually, the company will probably get bought out.

There are 324.9 million shares, the stock trades at 3.49 euros ($3.82), and the market cap is 1.133 billion euros. Last year’s dividend was 0.1362 euros and I assume management will increase at least 5% this year, so I am going to say the dividend is 0.1431 euros. The dividend yield would be 4%. The forward earnings per share are 0.25 euros and the price-earnings ratio is 14.

For the first half of the year, revenues were down 6.7% to 307 million euros. Operating profit was down 7.9% to 55 million euros. Free cash flow was 56 million euros. The interim dividend was increased to 0.0496 euros. The company bought back 21 million euros worth of shares. The 2.8 million euros loss of the operating profit was due to currencies. Diluted earnings per share were down 6.1% compared to the first half of fiscal 2017 from 16 to 0.139 euros.

Looking at volumes of alcohol, Ireland was down 4.1%, Scotland was down 1.1%, C&C Brands was down 4.2%, North America was down 34.2% and Exports were up 10.2%. You can see some issues with competition. For 2017, management expects cost savings to flow through, Ireland to remain in line with sales growth, Scotland to stabilize, gains in the C&C brand, continued foreign exchange volatility and strong cash performance. A cost savings program of 15 million euros is expected for total fiscal year 2017. This is to be achieved through layoffs and the divestment of a PET plant.

The balance sheet is strong with 190.5 million euros in cash and 140.3 million euros in accounts receivables. This is to 346.7 million euros in debt and 236.8 million euros in payables.

So here is the problem with C&C. There are only three brewers left: Inbev (

BUD, Financial), Heineken (HEINY, Financial)(HKHHY, Financial) and Coors (TAP, Financial). They dwarf little C&C. Bud, Coors, Miller, Michelob, Stella and about every other beer is under Inbev. Heineken has Amstel and Dos Equis. Coors has Molson. Of course there is Carlsberg too. Inbev has a market cap of $200 billion, Heineken's is $46 billion and Coors' is $22 billion. C&C cannot compete.

C&C started off life a few years ago in food and other products. It was basically built through an initial public offering and mergers and acquisitions. It is not like it has a rich history like Heineken. Heineken was founded in the nineteenth century and had to move to the U.S. when the Germans occupied Holland. Heineken will probably always be a standalone company.

Some better known value owners include Third Avenue (

TAVFX, Financial) and Southeastern Asset Management (Longleaf). I got the idea from Third Avenue.

C&C’s many problems stem from the many entrants that have come into the cider business. There are no barriers to entry. If you see Hornsby’s or Woodchuck for $8.50 a six-pack and then see that Stella or Heineken has an offering for $7.50, which one are you going to buy? Mangers and several others are the old-line names in the U.K. and Ireland.

I must say that management knows this. They are spiffing up the balance sheet, have ongoing share buybacks and keep increasing the dividend. They are doing their best. But how do you take on Inbev when they are almost 150 times your size? Inbev is completely vertically integrated (other than not owning the distributors).

We own C&C. It is a great value stock. We are at about a 10% loss. One day, we figure, we will wake up and C&C will get bought out. On that day, the stock will probably jump 40%, and we’ll make our little profit. We recommend this stock and recommend that a company in the food or beverage industry buy them out.

Disclosure: We own C&C, Heineken Holdings and Third Avenue.

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