Institutional Comment: Cloud of uncertainty masks value
Stock Spirits’ recent trading update has left investors nervous about the competitive environment in its key market of Poland. Given the persistence of supply and resurgence of competition we, cautiously trim our 2015 and 2016 estimates. However, we believe the underlying value creation story is still intact, with the possibility of an accretive transaction a key potential catalyst for positive momentum in our view. Additionally, management has committed to a focus on value share rather than engaging in aggressive discounting, a strategy that we think is appropriate. We adjust our valuation for earnings cuts and FX; we think less than 8x 2015e EV/EBITDA is compelling, offering 37% upside to our fair value.Stock Spirits Group is a spirits company. Co. along with its subsidiaries are engaged in the production and distribution of branded spirits in Central and Eastern Europe. Co.'s spirits include vodka, flavoured vodka, rum, brandy and herbal bitter liqueurs. Co. has more than 40 brands and export internationally to more than 40 countries worldwide. Co.'s brands include Zoladkowa de Luxe, Lubelska, Zoladkowa Gorzka, Stock Prestige, 1906, Fernet Stock, Bozkov, Amundsen, Keglevich, Limonce, Stock Original, Keglevich, Golden, Stock 84, Fernet Stock Citrus, and Hammerhead. Co. has operations in Poland, Czech Republic, Italy, Slovakia, Croatia, and Bosnia and Herzegovina.
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