C&C Group, the drinks company behind Bulmers and Tennent’s, faces limited sales growth over the medium term if it does not carry out mergers and acquisitions (M&A) to boost its stable of brands, according to analysts to a new report from RBC Capital Markets.
A “leading premium or craft” drink brands deal, priced in the order of £200 million (€229 million), would make more sense than targeting a key brand in the UK, RBC analyst Tania Maciver suggested in the report. A transaction of that size would equate to almost 40 per cent of C&C’s current market value.
“While C&C is not currently in the market for acquisitions, we believe that a large and more diverse brand portfolio, similar to C&C’s much larger, global peers, is key to higher longer-term growth potential,” Ms Maciver said.
“Operating in a highly competitive beverages market in the UK and Ireland, coupled with changing consumer preferences for alcoholic beverages, we see limited top-line growth potential for C&C’s current brand and distribution divisions without an M&A strategy in place.”
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A spokesman for C&C declined to comment on the potential for M&A.
C&C flagship brands are Tennent’s, Scotland’s number-one beer brand, and cider brands Bulmers and Magners. It also has a number of niche premium and craft brands, including Orchard Pig cider, Five Lamps Irish lager, and Menabrea Italian beer, that made up only €27 million, or 9 per cent, of its branded products net revenue last year.
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The group has been more concerned with divesting assets in the past four years, including: Vermont Cider Company in the US (for less than 7 per cent of its $305 million purchase price in 2012); and its stake in UK pub chain Admiral Taverns.
C&C’s fifth chief executive in as many years, Roger White, who took charge in January, has set his sights on boosting innovation across the three main brands, which had been partly neglected in recent times, to grow sales and earnings.
He is also targeting margin growth in the Matthew Clark Bibendum (MCB) drinks distribution business C&C bought in 2018, but which went through a badly managed warehousing software system roll-out a few years ago.
While C&C’s shares rallied about 23 per cent from the start of the year to mid-August, they have since lost all those gains amid weakness across the broader UK beverages market and, more recently, news that its chief financial officer, Andrew Andrea, plans to step down early next year to join Domino’s Pizza Group.
Mr Rogers moved in March to drop what had been widely viewed as an unattainable goal of reaching €100 million operating profit in its financial year to February 2027, saying it would be hit in the “medium term”. RBC estimates that it will be 2030 before that goal is met.
With C&C’s drinks distribution division targeting earnings before interest and tax (ebit) margin expansion from 2.3 per last year to greater than 3.5 per cent over the medium term, Ms Maciver said the branded products division needs to be expanded “to really get the true benefit” from distribution. C&C sees its branded unit’s margin widening from 15 per cent last year to more than 17 per cent in the medium term.
Meanwhile, the RBC analyst said there was an argument for C&C to be viewed “more as a strong UK distribution business, benefiting from a relatively small, regional brand business, rather than the other way around”.
