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Supreme acquires Clearly Drinks for £15m

07:52, 24th June 2024
Paul Hill
PMH Capital
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Another day, another compelling M&A deal.

The latest being today's £15m (cash/debt free) acquisition by Supreme (SUPFollow | SUP from PE house NorthEdge Capital of Clearly Drinks (CD) who own the Perfectly Clear, Northumbria Spring and Revolution Waves soft drinks brands (re spring water, energy, isotonic, vitamin, coffee, mixers and tonic).

Elsewhere CD (founded in 1885) is also an established maker of private label and 3rd party beverages for a host of supermarkets (eg Waitrose, Aldi, Tesco, Sainsbury’s and Farm Foods) and international organisations.

So why enter the drinks market?

Well not only is this a large (UK est £9.6bn), profitable (10+% EBIT margins), resilient and expanding (GDP+) industry, but also the transaction immediately adds another synergistic growth platform to SUP's established portfolio of leading UK ambient and non-perishable FMCG brands across Vaping, Sports and Nutrition, Batteries and Lighting.

Additionally, it boosts non-vape annualised sales to >£100m, whilst equally fitting neatly into SUP's well-oiled distribution/supply chains and offering significant cross/upselling potential to boot.

But that's not all. The financials are attractive too.

Here in Dec FY23, Clearly Drinks delivered £3m (£0.6m 2022) of adjusted EBITDA on revenues up 13% to £22.4m (£19.7m) with further growth anticipated this year.

This means the £15m price was executed on a modest 5x trailing EV/EBITDA, which compares favourably to listed peers AG Barr (IRU-BRU owner) and Nichols (Vimto) who currently trade on 9x-10x EBITDA multiples.

Plus, the purchase should be both earnings enhancing and crucially value accretive, underpinned by robust asset backing given CD sported £10m of tangible fixed accounts as at Dec'22 (£1.2m land and buildings and £8.9m of plant and equipment) - reflecting its 150,000 sq. ft. freehold facility in Sunderland, which houses 3 natural spring water boreholes and a modern, fully automated production line.

CEO Sandy Chadha commenting: "We are delighted to be acquiring Clearly Drinks Ltd, a high-quality manufacturer and brand owner of soft drinks, which I believe delivers a significant component of our broader diversification strategy. SUP is gaining a strong additional [growth] pillar... alongside significant opportunity to develop and capitalise on cross and upsell opportunities."

Looking ahead Equity Research have a fair value of 225p/share after upgrading their FY'25 turnover, adjusted EBITDA, EBIT, and EPS forecasts to £239.7m, £37.0m, £31.6m, and 19.8p/share respectively. As such, the stock (at 140p) trades on attractive 7.1x PER & 4.5x EBITDA multiples, and pays a 4.9p dividend (3.5% yield).

Finally, the consideration has been funded from SUP's own cash resources, leaving proforma net debt (pre IFRS 16) at an estimated £10m (or 0.3x EBITDA). FY'24 prelims are due out on Tuesday 4th July.

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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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