Sleepy C&C Plc (CCGGY, Financial) is still a buy. The brewer is too small to survive on its own and would be a perfect opportunity for a food company to break into beer or for Inbev (BUD, Financial) or Heineken (HEINY, Financial) to expand.
The stock sells for €2.90 in London, there are 309,551,000 shares and the market cap is €898 million ($1.059 billion). It takes $1.18 to buy one euro. Assuming the dividend is not increased in the next half (but it probably will be), the dividend is 14.58 euro cents and the dividend yield is an amazing 5%.
For the first half of fiscal year 2018, sales were down 3.7% to €273.1 million ($322 million). Operating profit was up 40 basis points to €50.5 million ($59.59 million). Free cash flow was a strong €75.4 million ($89 million). Assuming C&C could produce that in the next half, the free cash flow yield would be 16.8%. With that free cash flow, management has increased the interim dividend 5% to 5.21 euro cents. Management has also bought back €30.6 million ($36.1 million) of shares. Earnings per share for the half were down 3.7% to 12.9 euro cents.
C&C’s portfolio includes old school pub beers such as Tennets, Mangners and Bulmers. These brands aren’t so well known in the U.S. but are in the U.K. and Ireland. U.S. drinkers would probably be more familiar with Woodchuck Cider and Hornsby’s. C&C is going to have a bear of a time competing in cider with the big two. Both Inbev and Heineken have introduced their own ciders that are whomping C&C.
What I find quite interesting is that Inbev is distributing some of the brands in England. My advice to management is for them to buddy up to the Inbev guys and get them to buyout C&C. C&C was formed through M&A. It’s not like other brands with a strong corporate history going back to the nineteenth century.
The company has also launched several beers to compete in the craft space. Its Five Lamps beer is in 210 pubs in Ireland. Also recently launched in Ireland is Dowd’s. A Belgian brew named Heverlee was launched in the past few years and volumes were up 19%. Heverlee is sold in Tesco (TSCDY, Financial). That’s where you want to be in the U.K. Sales were up 18% in Asia. The distributor is Coca-Cola Amatil (CCLAF, CCLAY). Amatil’s area is Australia, New Zealand, and the Asian islands north of Australia. Amatil is looking for growth just like C&C.
The Scottish parliament just passed a law for minimum alcohol pricing. The idea is to make alcohol a little more expensive to cut down on binge drinking. C&C supported the move.
On 4 September C&C announced an investment of £37 million ($43.7 million) to acquire a 47% stake in Admiral Taverns. Admiral runs 845 pubs in England and Wales. Another use of that strong free cash flow.
The asset side of the balance sheet shows €217.7 million ($257 million) in cash and €91.7 million ($108 million) in receivables. The liability side shows €390.7 million ($461 million) in debt and €174.9 million ($206 million). That’s strong.
We own the stock and are down 23.29% since August 2016. With the dividend, we’re probably down about 17% or so. It’s a buy. You just have to be patient. One day, shareholders will wake up and C&C will get bought out by a larger outfit. In the meantime, it’s your textbook value stock.
We own C&C and Heineken Holdings.
