Page 7


Scaled-up drinks firm set for rule changes Conviviality joined AIM as Conviviality Retail in July 2013. In October 2015, the company undertook the reverse takeover of Matthew Clark.

This transformed Conviviality from chiefly a franchised off-licence operation into “the UK’s leading independent drinks wholesaling group to the on- and off-trade”. The company name was then changed to reflect the reduction in contribution from retail activities. The move toward wholesaling was further advanced by the £60m acquisition of Bibendum earlier in May. The revenue mix across the group is now approximately 1 part retail to 4 parts wholesale. Conviviality retails through Bargain Booze, Bargain Booze Select Convenience (alcohol plus general convenience retail) and Wine Rack.

booze is becoming uncool Matthew Clark is a supplier to the “on-trade”, premises where alcohol is consumed e.g. pubs, bars, restaurants and hotels. Approximately 60% of this industry is “tied” to a supplier, with the rest “free” to use an independent wholesaler such as Matthew Clark. Retail operations are franchised.

There are a total of 624 stores in the portfolio. Multi-site franchisees are especially valued by Conviviality as they are typically more profitable. They now account for around one half of the retail estate. The Matthew Clark acquisition completed in October 2015. Conviviality’s reporting year runs to April. We will not see a full year contribution from the wholesale operations until 2017 results.

higher revenues at better margins Possible changes to the way that pubs are forced to purchase alcohol (the ‘tie’) from one supplier could liberate the on-trade. Such changes to the sector would significantly increase Conviviality’s addressable market. This would be transformational as the improved efficiencies in purchasing and logistics would bring higher revenues at better margins. Results scheduled for July are expected to show a 24% increase in earnings per share with the dividend showing a small inflation-like increase. Forecast dividend cover is low at around 50%. 2017 earnings are expected to be around one third higher, thanks to acquisitions, securing future dividends. All said, the sector worries me. The trends around alcohol consumption

retail operations are franchised in the UK do not read well for companies such as Conviviality. Booze is becoming uncool. According to ONS numbers, in 2005, 19% of adults in the UK were teetotal. By 2013, this figure had reached 21%. Most worrying is that a large lump of that increase comes from young adults aged 16 to 24 swearing off alcohol. While the craft beer trend is strong, it is not enough to stop pubs closing at pace across the UK. The Matthew Clark acquisition is transformational. It broadens Conviviality’s revenue base, reducing earnings risk. The expected dividend yield and current market capitalisation would, in cash terms, see Conviviality become one of AIM’s biggest dividend payers. The Bibendum acquisition augments the positive story further still.

Conviviality (LON:CVR) FOR Rule changes will help Good yield AGAINST Alcohol trends bad Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£323m 208.75p:210.25p 15.0 4.1% 141p:239p


May 2016 AIM Prospector  
May 2016 AIM Prospector  

Featuring *NINE* AIM companies: Cerillion, Conviviality, Epwin, K3 Business Technology Group, idox, Mattioli Woods, Mulberry, Nichols and Yo...