Buy: C&C Group (CCR)
It’s still early days, but there are definite signs of a recovery at C&C Group, writes Michael Fahy.
The owner of the Tennent’s lager and Magners cider brands, which has been plagued by problems including a botched IT upgrade and accounting errors, managed to lift its operating margin by a full percentage point to 4.6 per cent, and with fewer writedowns it returned to profit on largely flat sales.
The improvement was attributed to a turnaround in its distribution arm, which supplies pub chains such as Stonegate and JD Wetherspoon (JDW). It had been losing customers due to poor service levels, but it has been turned around over the past 12 months and doubled its operating margin to 2.3 per cent. Management think this could be pushed above 3.5 per cent through market share gains and a further streamlining of operations.
On the higher-margin branded drinks side, C&C recently regained full control of the Magners brand in the UK from Budweiser. Management argued that although its performance had been weak in recent years, an increased focus (including a new advertising campaign) should drive commercial benefits.
Although free cash flow fell by a third to €43.6mn (£36.6mn) given more than €25mn of exceptional costs and €30mn of buybacks, management reiterated a goal of generating €100mn of operating profit and at least €75mn of free cash flow by 2027.
Based on this, Shore Capital analyst Greg Johnson expects a meaningful acceleration in earnings per share from 8 per cent in FY26 to 19 per cent in 2027.
This requires some faith that the recovery will continue, but a share price of 15 times consensus earnings looks like a reasonable price to pay given C&C’s improving prospects.
Buy: Pets at Home (PETS)
It is difficult to say whether the effects of the Covid-era pet boom have worn off yet, writes Mark Robinson. Successive lockdowns triggered a spike in pet ownership as people sought solace in our furry companions. But it’s difficult to identify any residual impact on that corner of the consumer market.
Pets at Home was a beneficiary of the phenomenon, as shown by the 23 per cent increase in group revenues between 2021 and 2023. Things have settled down since then, and the top line was static through to the end of FY 2025. But the good news is that where consumer revenues have grown, it has been at the more profitable end of the business.
The group provides a “one-stop shop” service for pet owners, or what its chief executive Lyssa McGowan describes as a “true petcare platform”. That description may seem slightly emotionally charged, but the desire to keep Tiddles in the pink underpins the business model to a large degree. Although people have stopped buying pets to ward off pandemic-linked loneliness, those new entrants to the home during lockdown will still require veterinary care for the next decade or so.
McGowan highlights “another outstanding year of growth in our vets business”, as evidenced by a 23.3 per cent increase in underlying profits to £75.9mn. By contrast, the retail side of the business, where demand is presumably more price elastic, saw a 16.6 per cent decline to £72.9mn. And it’s worth pointing out that relationships with veterinarians tend to be every bit as long-lasting as they are with your family GP.
The group’s physical presence has evolved over time, and it has expanded into smaller, more localised formats, including a network of veterinary practices. It has also overhauled its digital infrastructure and developed an increasingly successful membership scheme, while simplifying its distribution network. All of this activity sucks in capital, but with these investments now largely complete, the benefits to earnings should become more apparent. FY 2026 capital investment is being pitched at “normalised levels of below £50mn”.
Post-period end, profits have been tracking in line with guidance, while operating costs are expected to moderate. The consumer market remains subdued, so a rather broad range of £115mn-£125mn in underlying profits has been provided. Cash flows provide encouragement, and with negligible debt on the books (ex-IFRS 16) and no writedowns anticipated, a smooth transition to net earnings is to be expected. Even so, the shares trade significantly below the peer average on a price-to-book ratio of 1. So, the forward dividend yield of 5 per cent still warrants a “buy” call.
Hold: British Land (BLND)
British Land has been swimming against the tide, at least in terms of perceptions of the UK commercial property market, writes Mark Robinson. The orthodox view has been that work-from-home provisions and the inexorable rise of online retail have combined to pull the rug out from under the market — perhaps permanently.
But management has taken the view that the group could generate good returns by taking contrarian positions and investing in unfancied segments of the London property market. Simon Carter, chief executive of the London-focused landlord, makes the point that with “midweek occupancy back to pre-pandemic levels” and greater competition for “multichannel” space in the group’s retail parks, it is seeing above-inflation rental growth.
This probably makes sense when you consider the shortfall in construction activity in the wake of the pandemic, and the clamour for premium office space, which has also been highlighted by British Land’s peers. But if a supply-side shortfall is boosting rental values, it isn’t immediately obvious in the group’s preliminary figures. Progress, understandably, has been incremental rather than dramatic.
Underlying earnings were flat on the prior year at 28.5p a share, while total property returns were 6.9 per cent to the good due to a valuation uplift and an encouraging rise in estimated rental value. However, returns were constrained by a 110 basis point increase in the cost ratio to 17.5 per cent. Nonetheless, the projected boost to the rent roll will be warmly welcomed following several years of valuation declines driven by rising interest rates.
Assuming rents are indeed responding to renewed investor demand across the portfolio, the recovery is still in the nascent category. So, for the moment, we will keep our powder dry despite the attractive forward yield of 6 per cent and the 30 per cent discount to net assets.
