Uncorked... festive sales flow for drinks firm Conviviality
CHRISTMAS is upon us but many retailers are worried about inflation and stagnant wages.
Conviviality is bucking the gloomy trend. Midas recommended the shares in August 2013 at 144½p. Today they are 386½p, and many City brokers expect the price to rise further in the next 12 months.
Their optimism has a certain logic. First, Conviviality is no longer just a retail stock. Having started by running Bargain Booze, a chain of cut-price off-licences, it bought two of the biggest drinks suppliers in the UK, Matthew Clark in 2015 and Bibendum last year.
Today, the group supplies 14,000 products – beer, wine and spirits, ranging from cheap lager to rare clarets, as well as soft drinks. Customers include 25,000 pubs, restaurants and hotels, all the UK’s major supermarkets, and independent stores, such as Harrods wine department.
The Bargain Booze chain now has 700 outlets and on Friday chief executive Diana Hunter announced the acquisition of 127 convenience stores from Palmer & Harvey, the wholesale group that went into administration last month. The deal will cost £25 million, funded by a £30 million share placement at 375p a share. Conviviality’s share price rose in response to the deal, as investors interpreted it as a sign of Hunter’s confidence.
Conviviality’s scale means it can get the best prices from producers and pass them on to bars and off-licences. These customers also benefit because they can buy all their drinks from one firm.
A trading update last month revealed the benefits of this approach. Turnover was 9.2 per cent higher in the halfyear to October 29, the group expects to continue reaping the benefits of the Clarke and Bibendum deals, and the Palmer & Harvey deal will strengthen the Bargain Booze chain, particularly in the south and south-west of England.
Even if consumers spend less on some daily goods, they continue to fork out for drinks. Expensive, speciality gin remains in vogue.
Other spirits, such as vodka and rum, are following the same trend and many tipplers continue to treat themselves to upmarket wine at the weekend.
Even before Friday’s deal, brokers were forecasting a 17 per cent increase in pre-tax profit to £53.5 million for the year to next April, rising to £58.1 million in 2019.
A 10 per cent increase in the dividend to 13.8p per share has been pencilled in for 2018, and is expected to rise to 14.6p the following year.
Midas verdict: This is the busiest time of the year for the drinks industry. Conviviality should do well and investors should benefit. Those who bought in 2013 may want to sell some shares and bank a profit, but Hunter is doing a good job and, at 386½p, the price still has momentum.