Davide Campari-Milano: You Like Cocktails? I Like Cocktails

Davide Campari-Milano: You Like Cocktails? I Like Cocktails


In this article, I’m catering to those of you interested in consumer defensives – namely beverages, spirits, and wines. I like this segment and own stock in several companies.

Davide Campari-Milano, or Gruppo Campari, is an Italian business in the beverage industry. It doesn’t have a superb yield – but it does come with upside and a great portfolio.

You will know many of its brands personally.

Learn why you should be interested in the company.

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abile/E+ via Getty Images I know what you’re thinking – Italian beverages?

Yep. Davide Campari-Milano ( OTCPK:DVDCY ) is an undercovered Italian beverage stock with a market capitalization of no less than €11.2B. It’s the owner of many well-known brands in the industry.

Perhaps most importantly, its balance sheet and fundamentals are second to very few – and offer incredible opportunities for accreditive M&As and organic growth over the next few years.

In this article, I’ll show you exactly why. Delving into Davide Campari-Milano

The company is an Italian global beverage company. It’s also the sixth-largest beverage company in the entire world and owns a portfolio of no less than fifty premium/super-premium brands. Davide Campari products are sold in 190 nations across the globe, and their primary leading marketers are EU and NA, with low overall Asia Exposure.

Let me start off with that.

Davide Campari-Milano is not an emerging market or Asia play. Its sales revenue base is 93% NA and EU/Middle East. I view this as a positive in part because of geopolitics, as well as the growth potential from that area of the world.

The USA is 27% of sales, Italy is 20%, Germany is 9.5% – those are the biggest markets. US and Italy are absolutely key for the top-line as well as margin expansion forecasts.

These are the company’s brands. Campari Brand Portfolio (Campari IR) What makes Davide Campari-Milano so great?

A few things, to my mind.

The company is a proven expansion-capable business. It had less than 3% sales revenues from the French market and decided to change this. They did this without any sort of local subsidiary but simply acquired the Grand Marnier brand for €652M, paying a 13.5X+ EBITDA multiple for this cognac. It also added Bellonnie & Bourdillon to its portfolio as well as other French local brands and distributions. Today, France is in a much stronger position thanks to key M&As and pushing into specific markets – and France may be just the beginning. Davide Campari Sales Split (Davide Campari) Second, the company isn’t focusing on ‘ cheap swill’. This is a bet on premium and ultra-premium brands, the so-called cocktail culture which depends on consumers being willing to pay premiums. The company has exactly the brands that it needs to do this, with the well-known brand Aperol as well as Campari itself. Other key brands include Appleton Estate Rum, Wild Turkey Whisky, and Skyy Vodka. The business is still at a relatively low international exposure in terms of aged spirits (with Diageo ( DEO ) and other comps being far higher), but it’s growing.

Aperol was acquired almost 20 years ago, and the popularity of the Spritz cocktail has made this a must-have. Aperol is only produced in Italy, and it is the group’s most important asset. It’s primarily a drink consumed by women, even though men are starting to favor it more and more. Aperol makes up 20% of company sales, with a 2003-2018 CAGR volume growth of 19.6% and organic sales growth CAGR of 18%.

FX exposure to other currencies than the Euro and Dollar is very low – less than 20% overall.On a high level, gross margins are much in line with its peers. Around 60% is where Campari currently is. The positive is that Aperol, the company’s star brand, is at an 80% gross margin, with a very favorable overall product mix development.The company is a very effective manager of cash. The generation here has been consistent thanks to stable overall margins, efficient capital management, with most cash aimed at M&A management. Part of the reason why Campari is such an effective manager is that it doesn’t share its peers’ exposures to aged spirits/liquors which is usually a bit more problematic in terms of inventory management. Campari’s portfolio is less sensitive here.The company has a fundamentally safe credit rating, though not from S&P Global or any player you might immediately recognize – but CRIF .This should be viewed […]

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