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UK based Conviviality (CVR.L) is a wholesaler and distributor of alcohol and impulse products serving consumers through its franchised retail outlets or through hospitality and food service. The Company’s activities consist of the wholesale and retail distribution of beers, wines, spirits, tobacco, grocery and confectionery within the UK. Segments include Conviviality Retail, Conviviality Direct and Conviviality Trading. Conviviality Retail is a franchised off-license and convenience chain with over 370 Franchisees and over 700 retail stores trading primarily under the fascias of Bargain Booze, Bargain Booze Select Convenience and Wine Rack. Conviviality Direct is an independent wholesaler to the on-trade, through Matthew Clark & Bibendum, serving over 23,000 outlets from national hotel chains to independent food-led pubs and restaurants. Conviviality Trading is a full service brand and wine agency, and includes events agency Peppermint.
On January 30th 2017, Conviviality said that the acquisitions of wholesalers Matthew Clark and Bibendum had more than tripled first-half sales and almost quadrupled PBT, which rocketed 285% to £7.4m. With revenues up 211% to £782.5m, the group was able to double its interim dividend to 4.2p. CEO Diana Hunter said the group was now in an “unrivalled position”, adding that the group “continued to trade in line with expectations for the full year.” Conviviality remains “well positioned in its market with a resilient business model that provides unique positioning for its suppliers and customers.”
The exceptionally strong trading update has been rewarded with a substantial increase in the share price. The acquisitions, and the manner in which they have so successfully bedded in, have transformed the value within the company. Despite the share price increase over the past few weeks, the rapid growth has resulted in VectorVest metrics reflecting a value of 310.27p for CVR, offering further upside from the current 272p. Added to this, CVR logs a forecasted Earnings Growth Rate (GRT) of 25.00%, which VectorVest considers to be excellent. Cautious investor should note that the VectorVest Relative Safety (RS) metric does reflect the flipside of this rapid growth, with an RS rating of 0.95 for CVR, fair on a scale of 0.00 to 2.00.
The chart of CVR is shown above over the last year of trading. The green line above the price is the VectorVest valuation while the blue study in the window below the price is earnings per share (EPS). EPS is growing strongly and driving the share price upwards. VectorVest has had a BUY recomedation on the share since the start of this year. The upward trend is strong and gaining in momentum (not shown) which is positive for a further advance.
Although the rapid expansion at CVR is not without risk, as reflected in the VectorVest RS rating, the quadrupling of profits and tripling of first half sales shows how well and how quickly the Matthew Clark and Bibendum acquisitions have bedded in. We take the view that the earnings growth that CVR looks set to continue delivering will see the group comfortably achieve full year expectations, with more to come. Buy.
Dr David Paul
February 7th 2017
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