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.
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
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.