bargain booze

Conviviality’s bold transformation from booze retailer to the UK’s largest alcohol wholesaler is paying off for investors after the widened group beat full-year City expectations this week.

The drinks group revealed on Monday that annual profits had more than doubled in the year to 30 April 2017, largely thanks to its Matthew Clark and Bibendum acquisitions over the past two years. Those deals saw overall sales at the Bargain Booze owner jump 85% to £1.6bn, while comparable revenues were up 5.8%. Conviviality also pointed to millions of pounds more synergies yet to come in the next two financial years as its acquisitions are fully integrated and said that trading since year-end had been strong, driven by the good British weather.

The results, which were above consensus expectations, were enthusiastically backed by the City. Broker WH Ireland raised its price target to 400p and commented: “Evidence of the success of the enlarged group’s strategy is being demonstrated through both the increased spend per outlet and the total increase in number of customers”. Investec also raised its price target, to 375p, and said: “Underlying revenue and profit growth achieved despite the disruption risks posed from integrating two material acquisitions. We expect these risks to subside as systems work completes, with investor focus turning towards opportunities for growth and market share gains.”

Conviviality shares jumped 4.6% to 332.8p on Monday and continued trending upwards. The shares are up 56.3% so far in 2017 and hit an all-time high of 343.5p on Tuesday.

Dairy Crest was another stock backed by investors this week, as it enjoyed a share price rise despite warning in its first-quarter update that increased butter prices were squeezing margins and it was ending promotions of its Country Life brand. The shares rose 3% to 573.5p on Tuesday as the group reported strong first quarter volume growth in its core branded portfolio.

Peel Hunt said: “The shares have drifted back, which is not surprising given the spike in butter pricing. But this is likely to be a temporary issue. Elsewhere, the company is seeing good branded growth and making promising headway with new customers in infant formula.”

Under-fire Premier Foods issued another gloomy sales update on Thursday, with first quarter sales down 3.1% driven by changes to supermarket promotions, less demand for its products in the June heat and general weakness in the market. Premier shares edged back up 1p to 39.75p but are down 15% so far in 2017 and well down on the 57p in achieved during the spurned 2016 bid by McCormick. Jefferies concluded: “Everything still to play for in 2017/18. But a slower start than we were hoping for, one which will inevitably ratchet up the pressure in Q2 and beyond.”