Diageo rattles C&C with plot to rain on Bulmers’ St Patrick’s Day parade

Joe Brennan: New cider wars and new battleground in non-drinking Generation X

The unseasonably warm weather in Ireland at the moment should ordinarily put a pep in the step of C&C chief Stephen Glancey.

After all, the drinks group is set to report next week that its earnings grew for the first time in five years in the 12 months to the end of February, boosted, in part, as last summer’s heatwave – and the World Cup – lifted sales of Bulmers and Magners cider.

But news this week that Diageo is planning to launch Rockshore Cider in Ireland, possibly around St Patrick's Day, sent C&C's shares down as much as 3.7 per cent on Wednesday.

It’s not as if Bulmers wasn’t already under pressure, with Heineken’s Orchard Thieves and a plethora of craft ciders having made a massive dent in its Irish market share in the past four years. Bulmers’ share of the Irish cider market fell from 77 per cent of volume in 2013 to 63 per cent in 2017.


Still, C&C counts as one of only six stocks on the Iseq 20 index in Dublin to have advanced over the past 12 months, helped as the group snapped up UK drinks distributor Matthew Clark and Bibendum (MCB) when its parent, Conviviality, entered administration last April.

Market analysts reckon that MCB was the main driver behind an estimated 22 per cent surge in C&C’s operating profits, to €105 million, in its last financial year. And the hope is that the group will be able to use the UK wholesaler to push its brands and fuel earnings growth over the next few years.

However, the biggest bears on C&C's stock, analysts at German investment bank Berenberg, said in a report this month that this argument is flawed and each of the group's brands – Bulmers in the Republic, Magners in the UK and Tennents mainly in Scotland – faces a "cocktail" of headwinds.

Chief among these is the fact that Generation Z, people born between the mid-1990s and early 2000s, is proving to be even more health- and image-conscious than the millennials before them.

“Twenty years of anti-drug, anti-smoking and anti-alcohol education has done its job: it is no longer ‘uncool’ not to drink or take drugs,” according to the Berenberg analysts. The rise of the smartphone hasn’t helped. “People have been put off the consumption of alcohol that may lead to them ‘going viral’ for being ‘wasted on camera’,” they added.

But underpinning the stock is the fact that few drinks companies out there can turn earnings into hard cash quite like C&C. It helps to fund the most attractive dividend yield on the Iseq 20 – of almost 5 per cent its share price.

Then again, it’s the kind of yield you might expect when investors are questioning a company’s growth prospects.

SMEs sit tight as Brexit looms

You’d never have guessed it from the generally negative market reactions to results from Ireland’s surviving bailed-out banks this week, but the sector turned a significant corner last year – managing to grow its combined net loan book for the first time in a decade.

Having seen their loan portfolios contract by about 50 per cent over the past 10 years, as banks sold unwanted and problem loans and assets and households and companies repaid loans at pace, this was an important milestone.

Mortgage lending increased by almost 20 per cent last year to €8.7 billion. Bankers are eyeing further growth in the years to come as home construction, running last year at about half the estimated demand for 35,000 houses and apartments, continues to recover from the crash.

Top executives from AIB and Bank of Ireland said during the week that large companies also appeared to be in rude health, judging by their demand for fresh credit.

However, lending to small- to medium-sized enterprises (SMEs), the backbone of the economy, stood out as the only weak spot.

"The SME segment has effectively been static and slightly declined during the period," AIB's outgoing chief executive Bernard Byrne said on a call with analysts on Friday. "We think there's been a holding off on investments by SMEs as they wait for clarity – or to understand where Brexit is going to go."

Banks, who at the height of the crisis had €1.80 out on loan for every €1 on deposit, are now struggling with the opposite problem, with average loan-to-deposit ratios of about 95 per cent at the end of December. This, too, is being driven by cautious SMEs – wary of tariffs and wild currency moves in the event of a disorderly Brexit – hoarding cash.

Could a soft Brexit unleash a wave of latent credit demand from small firms?

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times