Conviviality Plc (LON:CVR) following on from the positive trading update in May, today reports a strong full year set of results. Group sales increased 85% YoY to £1,560m, while adjusted EBITDA doubled to £60.9m, 5.2% ahead of our forecast of £57.9m. Adjusted PBT increased 111% to £45.8m, and adj. fully diluted EPS of 21.0p was also ahead of our forecast of 20.2p. FY17 was a transformational year for Conviviality and significantly the integration of the recent acquisitions are running ahead of plan. Management remain confident in the outlook for the business, reflected by the 33% increase in the full year dividend to 12.6p that is covered 1.7x, as well as increased guidance on synergies in FY19.
Despite the shares being up c.50% YTD, our view remains that the risks still lie to the upside as more synergies could emerge over time. The size and influence of CVR in the UK drinks market is not fully reflected in the valuation and the shares continue to trade at a discount to the peer group. Despite the Booker takeover premium of 24x P/E to December 17, in our view CVR trading on 13.3x to April 18 with a yield of 4.4% remains too cheap. If it were to trade on 16x this would imply a price of 380p, and 18x would imply a price of 404p.
After a strong FY17 and organic growth of 5.8%, all three business division continuing to trade well into the new year. Trading for the 9 weeks to 2 July shows Conviviality Direct sales +9% YoY, Conviviality Retail +0.5%, with Wine Rack +4.0%, and Conviviality Trading +7.6%, reflecting an increase in the number of events by 27% to 140. Direct is benefitting from the growth of the digital platform, with 4,645 customers now choosing to place orders this way. Digital customers tend to spend more and stay longer with order value per customer 13% higher than customers who place order via the contact centre.
Significant integration program well underway. The integration plan set out at the time of the acquisitions is running ahead of plan, with £8m buying, £4m from Bibendum and £1-1.5m of logistics expected this year. In line with guidance we are nudging up our synergy expectations to reflect some additional synergies. Our FY18 EBITDA forecast increases to £69.0m from £67.6m and to £74.1m from £72.2m in FY19. In our view the risks still lie to the upside in terms of more synergies emerging over time.
Outlook and significant valuation opportunity. FY17 has seen Conviviality Plc established as the UK’s leading drinks wholesaler and distributor. It is very encouraging that the integration process remains on track and that management remain very confident that synergies will be delivered. The proposed Tesco-Booker deal values Booker on a CY17 P/E of 24.1x and EV/EBITDA of 16.5x. This should have positive read across for CVR which continues to trade at a significant discount on a FY18 P/E of 13.3x and 4.4% yield. Applying a 20% discount to the FY18 P/E multiple of the average of Booker and Majestic, i.e. 16.0x, we see an intrinsic value of 381p, a premium of 20% to the current share price.