Javier Echevarria of Invexcel Patrimonio presented his in-depth investment thesis on C&C Group (Ireland: GCC) at Best Ideas 2018.

C&C is a small European company that produces and distributes alcoholic and non-alcoholic drinks. It has a strong and diversified portfolio with leading beer and cider brands sold in 60+ countries. C&C is also a leading supplier, distributor, and wholesaler of beverage products in Ireland and Scotland, its core markets, where it generates ~85% of operating profit.

Some well-known value funds are the major shareholders, with a large position (~39% of the capital) built over the last two years, giving long-term support to management’s business plan. The stock performance during the last five years has been -37%, mainly due to a mixed capital allocation record, weakness in core markets, and intense competition.

Javier believes C&C has left behind the worst-case scenario. It is a company with strong and durable competitive advantages, a long-term partnership with AB InBev, and a strong record of cash generation (ten-year average of 64% vs. 46% for European peers) and returns on capital employed (13.6% vs. 10.8% for European peers).

At recent prices, the valuation seems compelling, with an FCF yield of 8.5% (vs. peers at 4.5%), P/E of 12.3x (vs. peers at 23.6x). Financial leverage is also below that of its peers (1.6x vs 2.4x).

About the instructor:

Javier Echevarria has specialized in Equity Investments and Wealth Management since 2007. He worked in Bestinver’s sales team (2007-2009). He coordinated the Anatha charity project in Cambodia (2009). He joined Excel Corporación as Markets Analyst (2009) and Invexcel Patrimonio EAFI (2010). He holds a Degree in Law (Universidad Complutense de Madrid) and a Master’s Degree in Stocks and Financial Markets (Instituto de Estudios Bursátiles).

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