Stock Spirits Group: Stocked up for good (downgraded to HOLD)
We have downgraded Stock Spirits Group (Stock) to HOLD (from Buy), with a new price target (PT) of GBp 317/share (from GBp 305). Stock has benefited from its large exposure to the Polish off-premises channel, as consumers stayed home, and has reported its highest market share since 2016 (c.30%). With a gradual reopening taking place at some point, on-premises dominated categories (i.e. beer) could gain share from spirits, while the recently-introduced small-format tax poses a further risk for the market. In the Czech Republic (c.26% of sales), competitive pressure resurfaced after the c.13% excise tax hike in 2020. The increased competition now affects c.60% of the spirits market, but we believe that Stock’s market position (#1 with a c.34% share) should limit the downside potential on profitability or market share. Following a 38% rerating, Stock trades at our adjusted FY20/21E multiples of 9.3x (EV/EBITDA) and 15.8x (P/E), at 12-28% premiums vs. its historical averages. We expect the company to deliver a 3% adjusted EBITDA CAGR in FY20-22E, which reflects the multiples fairly, in our view.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.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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