City analyst Wayne Brown has issued a Sell recommendation for Magners producer C&C Group following its acquisition of US cider brand Hornsby’s, saying the brand “offers little by way of growth” and is likely to take a long time to deliver. Yesterday Dublin-based C&C Group bought Hornsby’s, the number two cider brand in the US, from E&J Gallo for a deal worth up to €20m. Brown, of Collins Stewart, said: “With a FY ebit expectation of €2.2m, this deal is not going to change the needle in terms of profitability but is also not cheap at c.9.1x ebit pre-investment. “C&C is in effect buying just the brand, goodwill and current inventory holdings, aside from this, future risks lie with C&C to maintain distribution agreements.” He said that despite the US cider market growing at c.20% per year, Hornsby volumes and revenues have achieved low single-digit growth. “There exists long term potential in the US, but the cider market is nascent and equates to c.0.2% of the US LAD market. Hornsby is a West Coast-based business where C&C has no existing relationships and will not likely see any near term benefit to its East Coast presence. “We do not find fault with the strategic rationale behind this deal, but it is a full price for a brand that offers little by way of growth and likely a long time to deliver.” Brown said key concerns about C&C remain: the material slowdown in trading from the Q2 results; the sudden departure of chief executive John Dunnsmore; increased competition from new and existing brands; and that fact C&C operates in challenging markets. “In both the UK & IRE, the on-trade is an increasingly tough environment for premium-priced products, and the increased focus on promotional activity in the off-trade could result in further margin deterioration. C&C shares closed up €0.05 (1.65%) to €3.08 last night.

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