Tuesday, 10 March 2015

Campari - more than just the eponymous bitter aperitif (and what levels I would buy the shares at)

Gruppo Campari is a company with much more than the eponymous bitter aperitif as this brand profile shows.

I was thinking about the company today because it published its corporate results which looked, at first glance, a bit dull especially on the ebitda/ebit line.  

Of course having over 50% of sales and in excess of 60% of profit from Europe (with a focus on Italy) didn't help during 2014...

...especially as amongst the top six brands, two (Wild Turkey and Cinzano) both struggled due to specific geographic challenges (in Australia and Germany specifically respectively).

Ultimately however it is a branded business with sustainable and generally strong brands albeit with just under Euro1bn of debt on the balance sheet (a little under x3 ebitda).  I have observed before that other akin (but larger) branded spirits businesses like Pernod Ricard, Diageo and Brown-Forman have been trading on mid-teen EV/ebit multiples.  Throwing the profits forward a little reflecting a positive but a little mixed outlook statement...

...puts the company on around a x14 EV/ebit generating a near 4% free cash flow yield (of which a little over 1% is paid out).  

These are not ultra-full multiples but given my anticipation of further volatility in European equities I have set Euro5.75 and Euro5.25 as two levels I want to get involved at this sustainable, branded and currently still family influenced company.  

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