Institutional Update: Stock up
Stock Spirits’ price retrenchment has created a valuation opportunity. While the company has experienced difficult trading in Poland in 2014, we think the primary cause (a Polish excise duty increase) is temporary. Alongside its leading market shares in Poland and the Czech Republic, we think the company has an opportunity to roll up smaller spirits companies in Central and Eastern Europe to create a regional leader. Conversely, it could be a target in the context of sector consolidation. With Stock Spirits trading at 10x EV/EBITDA and a 30% discount to the sector, we believe the valuation case is compelling. We initiate with a fair value of 285p, implying 14% upside.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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