We flag this morning’s announcement and note that the amendment to the interim EPS calculation as announced yesterday in the accounts does not affect our forecasts which remain unchanged. We calculate EPS on a fully diluted basis, and reiterate our EPS forecasts of 20.2p and 23.8p for FY17 and FY18 respectively. Our view remains that the business is considerably undervalued trading on the resultant P/E multiples of 12.6x to March 17 and 10.6x to March 18.
CVR today issues a positive set of results for the H1 period to the end of October 2016. The company also reports strong trading during the Christmas period across all of its businesses, with Group sales +6.1% in November and December, including record sales at Matthew Clark, and a 2.1% increase in retail like for like sales. Overall, the business continues to perform in line with full year market expectations. Management remain confident in the outlook and the plan to deliver significant synergies following the transformational acquisitions of Matthew Clark and Bibendum, with integration plans on track. Despite the shares being up c.27% over the past three months, our view remains that the risks still lie to the upside in terms of more synergies emerging 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 significant discount to the peer group. Despite the Booker takeover premium of 24x P/E to December 17, in our view CVR trading on 10.6x to April 18 is too cheap. If were to trade on 16x would imply a price of 380p.
Strong financial performance in H1 with organic growth delivered, on track to meet FY expectations. Revenue increased 211% to £782.5m and was 4.4% above the corresponding prior period with each business unit trading well. Gross margin improved 2.5% to 12.5, adj. EBITDA increased 252% to £22.9m while adj. PBT increased 295% to £15.4m. The interim dividend has doubled to 4.2p, which is one third of the expected full year dividend of 12.5p.
Christmas trading gives good momentum into H2. Group sales in November and December were 6.1% above prior period. Retail like for like sales in the 6 weeks ending 1 January 2017 grew 2.1%, with overall sales +6.9%. Conviviality Direct sales increased 6.2% and Conviviality Trading grew 3.1%.
New organisational structure in place that allows the business the opportunity to benefit from scale, with three clear business units established. These are: Conviviality Direct, the UK’s largest independent wholesaler to the on-trade serving 25,000 outlets; Conviviality Retail, the UK’s largest franchised off-licence and convenience chain with 358 Franchisees and over 700 stores; and, Conviviality Trading, a full-service brand and wine agency with activation capability including festivals and events.
Outlook and significant valuation opportunity. Following on from the good start to the year, it is very encouraging to see strong trading over Christmas and that integration of Matthew Clark and Bibendum is on track as CVR confirms trading in line with FY expectations. 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. Applying a 25% discount to the FY18 P/E multiple of the average of Booker and Majestic, i.e. 16.0x, we see an intrinsic value of 380p, a premium of 46% to the current share price.
