Stock Spirits share price ready for a shot


Stock Spirits (STCK LN) : 

Is a leading vodka maker in Poland with a considerable market share in Czech Republic as well. Trades at a deep discount to peers, after giving shareholders a bad hangover. I think the worst is priced in and current valuation doesn’t recognize the strong cash generation and leading market position. The strong balance sheet should help weather the current de-stocking storm. STC gpo





Market cap GBP 207m (Eur 282m) Net Debt Eur 92m, EBITDA JPM forecasts EBITDA Eur 51m for FY15 and Eur 67m next year.
Valuation: EV/EBITDA x5.6, P/E 15 and forward P/E 12 (cheapest in the sector), P/BV x1.7, ROA 5.7%, ROE 11% (not too bad), Divi 2%
Revenue: Poland 60%, Czech Republic 20%, Italy 12% (decent exposure to the Eastern European convergence theme)
Management: downgraded profit guidance from Eur 60-66m to Eur 50-54m, which came around 20% below Bloomberg consensus.
Deteriorating trading conditions in Poland:
– wholesales delayed placing new orders, as they had accumulated high inventories ahead of the tax hikes
-Discounters continue to grow faster and stock spirits in under-represented at discounters because it has a premium positioning. Stock Spirits launched
– competition remains intense as Marie Brizard (no 3 player) relaunched its flagship Krupnik brand with heavy promotions in November.
-The key competitor Roust (CEDS – now remained Roust Corporation) discounted heavily as the Russian parent needed desperately the cash tied in inventories, to pay downs their USD denominated debt. Roust had Net borrowings as at 31/124 of USD 882m or x8.2 EBITDA, priced at a distressed coupon 10%. (sooner or later they will have to focus on profits, rather than only volumes – easing pricing pressure )
-Problems in Poland started from the disruption arising the 15% rise in excise duty on spirits on 1/1/14, which added 8% to the retail price. Stock Spirits’ reported revenues fell 8, reflecting de-stocking by wholesalers. But supply flow and stock levels should stabilize as consumer patterns get back to normal
Balance sheet remains robust with sensible leverage and Debt/EBITDA x2.4

stck fa

Shareholder list includes some decent names like Shroders, Prudenttial, Capital and Aviva, each of them owning 7% – 8% stakes. Perhaps some of them rushed to the narrow exit door causing the share price to collapse.

12 golden rules from Lord Lee

These are the 12 rules that FT columnist John Lee has followed while building his £4.5m Isa investment portfolio:

1 Try to buy shares on modest valuations — hopefully with an attractive yield and single-digit price/earnings ratio, and/or discount to net asset value.

2 Ignore the overall level of the stock market. Leave the macro outlook to commentators and economists — focus on your own selection.

3 Be prepared to hold for a minimum of five years.

4 Have a broad understanding of the main business activities of the companies you invest in — pick ones that make sense to you.

5 Ignore minor share price movements. Looking back in years to come, you will either have got it right, or got it wrong. Whether you paid 95p or £1 will be totally irrelevant.

6 Seek established companies with a record of profitability and dividend payments (avoid start-ups, biotechs and exploration stocks).

7 Look for moderately optimistic (or better) comments from chairman and chief executive in company reports issued to the stock market.

8 Focus on conservative, cash-rich companies and those with low levels of debt.

9 Ensure the directors have meaningful shareholdings themselves in the company, and ‘clean’ reputations.

10 Look for a stable board with infrequent directorate changes. Similarly with professional advisers.

11 Face up to poor decisions. Apply a 20 per cent “stop-loss” — sell and move on. However, ignore the stop-loss if there is an overall market fall.

12 Let profitable holdings run. Don’t try to be too clever, that is selling and hoping the market will fall to buy back at a lower price.


DX Group (DX/ LN): Delivering Exactly – stock market havoc

dx_tracktor DX Group (DX/ LN) is a UK based parcel delivery group, focuses on next day deliveries. Group’s initials stand for ‘Delivering Exactly’, this time they delivered market havoc. After a profit warning on 13/11/15 the stock price collapsed by two thirds from GBp 86 to GBp 20.

Currently the market cap shrinked to GBP 42.6m. The latest published accounts (30/6/15) show minimal Net Debt at GBP 1.8m, which appears not threatening if we consider the full year EBITDA last year came at GBP 33.7m. In the same fiscal year, DX generated Operating cashflow GBP 27.7m which was used GBP 9.2 in investments and GBP 8m distributed as dividends.

The Chaos begins on Friday 13th of November, when DX delivered an RNS announcement titled Profit Warning that unleashed sell orders and panic.
The document can be found here , management says: a) Revenue in Q1 will be down-5.3%, b) balance sheet remains robust, c) intention to pay a full year divi 2.5p. At today’s closing price, this sets DX at 12% Divi yield – not bad at all.

The house-broker forecasts FY16 EBITDA 20m (1/3 less than last year), this values the group at x2.2 EV/EBITDA and x0.22 P/BV, which could make DX group a lucrative takeover target. Screen Shot 2015-12-01 at 23.12.04

What happened? Management said overcapacity hit pricing and the core DX Exchange documents business is seeing higher than expected levels of volume decline (c. 10% vs initial forecast at 6%). Management also said driver shortages at peak season added to cost pressures.

How bad can it get? Worst comes to worst, DX could start delivering other items than papers, that are similarly time-critical (i.e. internet deliveries, flowers maybe?) I think the market panicked and some big shareholders rushed through the exit door – where there were no buyers.

It is encouraging to see a new shareholder joining the shareholder list, “River and Mercantile Asset Management LLP” bought enough to cross the 5% threshold.

Rivals Royal Mail (RMG LN) and UK Mail (UKM LN), have both reported stiff price competition, probably the market over-reacted as the memories of City Link collapse remain vivid.