2018 hasn’t been kind to owners of premium branded spirits and liqueurs producer and distributor Stock Spirits (LSE: STCK). Having climbed above the 300p level in late-January, shares in the High Wycombe-based business — which caters for markets in Central and Eastern Europe — have lost over a third of their value in the months since.
Based on the numbers released to the market this morning, however, I wouldn’t be surprised if some investors began to get interested, particularly as the company looks something of a bargain compared to industry peers.
Spirited effort
Hailing “a period of good growth and significant brand investment,” revenue rose 6.9% at constant currency to €282.4m in the 12 months to the end of September. Adjusted underlying earnings rose 8.1% to €59.4m and profit climbed 13.8% to €33.2m.
CEO Mirek Stachowicz appeared happy with these figures, stating that the company’s strategy of “premiumising” its range and using digital channels to target millennials was proving effective. Business in Poland continues to be good and ongoing investment in the Czech Republic appears to have helped to address “headwinds experienced earlier in the year“.The only problematic market — thanks to its struggling economy — was Italy.
Debt is also coming down. This time last year, Stock Spirits had €53.1m in net debt. Today, it announced that this had fallen to €31.6m by the end of September.
Today’s final dividend of 6.01 euro cents — equating a total dividend of 8.51 cents per share for the first nine months of 2018 — was another positive development and represents a 5.1% rise on that returned over the same period in 2017.
Trading at 13 times earnings before markets opened this morning, one could argue that Stock Spirits also looks quite attractive price-wise. It’s certainly a lot cheaper than beverage-related shares such as Fevertree (LSE: FEVR) and Diageo, although I would argue that the latter more than deserves its premium rating.
As for the former, the capitulation of Fevertree’s share price since early September just goes to show the risks of buying stock in a company everyone appears to love. Despite now being 40% cheaper, I’m still wary.
Falling star
Don’t get me wrong, Fevertree still bears many of the hallmarks of an excellent business. A strong brand, savvy marketing, massive returns on the capital it puts to use, a high operating margin, net cash on the balance sheet — the list goes on. As such, it’s not hard to see why institutional investors were so keen to buy up the stock when the company conducted a placing back in August (at 3,450p a share).
Nevertheless, the fact that these very same shares still change hands for 49 times earnings after the recent sell-off suggests this is one company that should appeal to only the most optimistic of market participants. With a huge political event now less than one week away, I’m not sure I’d include myself in this camp.
Befitting its growth credentials, dividends are negligible so prospective investors aren’t exactly being compensated for their patience either. The predicted 12.7p per share cash return this year means a yield of just 0.53% at today’s share price. That’s even less than the 1.45% offered by the best Cash ISA, never mind the huge payouts promised by some firms in the FTSE 100.
Since no company’s stock is worth purchasing at any price, I suspect Stock Spirits might be a better buy at the current time.
