Much of the focus on Christmas trading typically boils down to who has won and who has lost in the retail sector. It can be easy to forget just how important the festive season is to hospitality and leisure operators.
Certainly for C&C Group it appeared to be a significant marker in suggesting that its takeover of the Matthew Clark and Bibendum businesses from the collapsed Conviviality may just pay off.
C&C has its origins as a 19th-century soft drinks retailer in Belfast but is now an international drinks supplier with headquarters in Dublin. Its brands include Bulmers and Magners cider and Tennent’s lager as well as the craft imprints Orchard Pig, Five Lamps and Drygate. The company also has a 47 per cent stake in Admiral Taverns, the UK pub operator, and is dual listed on the London and Irish stock exchanges.
It picked up Matthew Clark and Bibendum, drinks distributors that together supply about 25,000 British outlets, in April last year. Since then C&C has tried to re-establish supplier relationships, improve operations and settle the bills.
Stephen Glancey, the group chief executive, said the festive period was particularly important for the two distributors as it could deliver about 30 per cent of annual earnings.
Investors have been watching closely, so a reassuring trading update last week will have perhaps eased concerns. According to Mr Glancey more than 96 per cent of deliveries were made on time, with the availability of stock also at high levels. The company even suggested the operational performance had been better than it had anticipated.
The core drinks portfolio continued to grow, although not as quickly as during an extremely strong summer boosted by the hot weather and the World Cup.
Analysts at Investec said the market had been waiting for quantifiable signs that C&C was capable of turning around Matthew Clark and Bibendum as well as any potential impact on consumer spending over Christmas. They said those concerns had now largely been addressed, and placed a “buy” rating on C&C’s shares. However, the stock has failed to sustain any real momentum in recent months. There was a short-term boost when the deal was first announced. Shares were at €2.64 at the start of April before climbing above €3.2 in the weeks after the takeover.
They briefly breached €3.5 in September but were caught in the downward spiral of consumer-facing stocks before Christmas and closed at €2.56 on December 24.
But there has been an upward trajectory since then, with trading at more than €3.2 in recent days.
C&C’s financial year ends in February and the market expects revenue of more than €1.7 billion for the 12 months. That would be a trebling from the €548 million turnover for 2018 and reflects the impact of Matthew Clark and Bibendum. Underlying profit before tax this year is predicted to increase by about 21 per cent to €96 million. The dividend was at 14.58 cents per share in the 12 months to February 2018 and it looks as though there is room to increase that.
But Mr Glancey acknowledges much more remains to be done. The next stage will be to further simplify processes and work on customer relationships. Beyond that there will be further integration of C&C’s own brands into the distribution network.
Another hot summer would certainly help and C&C must also hope consumer confidence doesn’t retreat when the outcome of Brexit becomes clearer.
ADVICE Hold
WHY Impressive start to turning around Matthew Clark and Bibendum but businesses with exposure to discretionary consumer products are likely to face pressures this year
Animalcare
Investors in Animalcare have had more than a furball lodged in their throats of late.
The York-based, Aim-quoted company struck a £134.6 million cash-and-shares takeover of Ecuphar, a Belgian company, in June 2017, which turned it from a largely UK-focused animal health company into a pan-European business.
The reverse takeover was hailed as “transformational”, creating a group with direct sales organisations in seven countries, instead of one, exporting to about 50 markets, up from 12, and about 98 sales representatives, up from 22.
The deal was broadened and diversified Animalcare’s portfolio of licensed veterinary pharmaceutical products. The enlarged company boasted 50 licensed drugs, eight vaccines and more than 100 products, compared with 21 licensed drugs for Animalcare.
Investors backed the £34 million cash element of the takeover through a £30 million discounted share placing at 350p a share.
Since then, things have turned sickly. The shares fell by about a fifth in mid-April last year to 209p after it warned that “competitive pressures” and the changing sales mix had hit margins. Iain Menneer, the chief operating officer, left a week later.
Chris Cardon, the founder of Ecuphar and biggest shareholder, stepped down as boss of the combined group last October.
Mr Cardon, who has become chief strategy officer, has been replaced by Jenny Winter, a big-pharma veteran.
The operational problems have not yet been addressed. A trading update yesterday for the year to the end of December 2018, its first full-year since the Ecuphar deal, triggered another lurch lower as the shares fell a further 14p, or 9 per cent, to 137½p, the lowest since 2014.
Total revenue rose 2.7 per cent to £84.2 million on a constant currency basis and, excluding the sale of its wholesale business in September, sales rose 2.5 per cent to £71.8 million.
“Supply challenges relating to certain third-party manufacturers”, delays to some new product launches and lower demand, particularly for antibiotics, impacted sales growth, it said.
ADVICE Sell
WHY Shares have re-rated sharply but limited signs of performance stabilising