Zeus Capital have said this morning about Conviviality Retail LON:CVR “The current CVR valuation is a significant discount to the peer group multiples that includes a mix of retail, similar franchise businesses and alcohol specific retailers. ”

Conviviality has successfully acquired Bibendum PLB, one of the largest wine, spirit and beer distributors and wholesalers to the UK on and off-trade markets, for an EV of £60m. The acquisition of Bibendum builds upon the transformational acquisition of Matthew Clark, completed last October, by accelerating CVR’s strategy of expanding the wholesaling business into new channels and markets, namely old world and premium wine, in London and the South East. Analogous to the Matthew Clark deal, we see scope for significant synergies, and on conservative assumptions, the deal is earnings enhancing in the current year.

• Detailed integration plan is in place, along same lines as Matthew Clark. The plan follows the same integration principles successfully deployed on Matthew Clark, which resulted in synergy upgrades in February 2016, c.4 months after taking ownership. We expect a detailed update on the Bibendum integration and synergies at the full year results in July.
• Compelling earnings enhancement on conservative synergy assumptions. There is the potential for significant cost synergies by combining the CVR business and Bibendum, particularly in relation to organisational, buying and distribution. Despite assuming zero synergies for the year to April 2017 (FY17), we see the deal delivering EPS enhancement of 8.5%, while we have assumed £4m of synergies in FY18, delivering EPS enhancement of 19.5%.
• Deal structure. The deal has been funded by a placing, raising gross proceeds of £32m at 205p. A further £10m term loan will be drawn under CVR’s revised facilities with existing lenders, and £20m drawn down on Bibendum’s invoice discounting facility.
• Positive trading statement confirms FY16 results are slightly ahead of market expectations. Sales are c.£864m, with EBITDA slightly ahead of expectations. As a result we increase FY16 EBITDA from £29.3m to £29.8m. Net debt expected at c.£87m. Matthew Clark has traded strongly since the acquisition with sales up 4.9%. In our view the risks still lie to the upside as there could be further buying synergies as negotiations continue. Forecasts assume no further synergies from distribution, organisation or revenue.”