It never rains but it pours for C&C Group. A couple of years ago the company that makes Magners Irish Cider was being praised for single-handedly rejuvenating the British cider market with its overice product. But after last year’s summer-long deluge C&C became better known for profit warnings, a plunging share price and hefty job cuts. Its woes were compounded by the launch of myriad me-too overice ciders, though the most damaging was Bulmers Original which, with the power of Scottish & Newcastle (S&N) behind it, was able to undercut Magners both in the margin available to the retailer and the price to the drinker.

The hope was that a return to more normal summer weather would restore C&C’s fortunes. If only life were that simple. The company warned investors yesterday that the consumer spending slowdown (its premium-priced proposition may not suit the times) and the continuing unpredictabilty of the British weather in June (the first of its key selling months) meant that revenue in the four months to June 30 was down 10 per cent in its cider division. The fall was 8 per cent for the group as a whole as spirits and liqueurs chipped in with a 3 per cent increase. C&C said that revenue for the first half was unlikely to match last year’s level, but that this would be offset by better operating margins, suggesting that first-half profits will be flat or even a shade better.

Elsewhere, its limited Spanish and German trials are “moving along” steadily, although the jury is still out on whether it will ultimately feel confident enough to push the button on a nationwide rollout of Magners. After a slow start, the launch of Magners Draught in pubs is starting to look promising, while Magners Light may benefit from the growing trend toward low-calorie products.

But the fundamental problem for C&C is visibility of future earnings. Last year’s performance showed that, just as trying to second-guess the weather is a perilous pastime, so attempting to forecast C&C’s trading is well-nigh impossible. The collapse in its share price – which has halved in the space of a month – has prompted suggestions that it could become a takeover target. However, the most likely trade buyer – InBev, which was outbid for Bulmers by S&N – might have been expected to show its hand before now if it was interested.

At €2.44, C&C trades on less than eight times downgraded earnings forecasts, yields 11 per cent, and is nearly back to its 2004 issue price. However, with the downturn likely only to worsen, and C&C’s cost-cutting efforts – which have prevented profits from falling even further – having nearly run their course, this is a stock best avoided.

Thomas Cook

Ever since Air Berlin told its annual meeting two weeks ago that it was reviewing its purchase of Thomas Cook’s loss-making Condor airline, it seemed only a matter of time before the deal formally fell apart.

That confirmation came yesterday with Thomas Cook’s disclosure to the Stock Exchange that it has withdrawn the merger application lodged with the German Federal Cartel Office. Surging jet fuel prices and faltering consumer demand have seen stock in Air Berlin lose nearly three quarters of its value since the cash-and-shares deal was agreed ten months ago, meaning that the German carrier would have to issue nearly four times as many shares to the British package tour operator as originally envisaged.

Not all is lost. Thomas Cook has hinted that it is lining up an alternative buyer for Condor – a disclosure that has forced it to suspend its €375 million (£299 million) share buyback programme. Considering that its shares have fallen 39 per cent over the past three months and its most recent reported average purchase price was 267p, that buyback has not proved the best use of shareholders’ cash. As for the future of Condor, one alternative might be to explore some form of tie-up with TUIfly and Lufthansa’s Germanwings, whose planned merger has yet to be consummated.

The broader worry is the outlook for next summer’s bookings, where a combination of a consumer downturn and higher prices cannot help but affect sales.

Package tour operators have a good record of preserving operating margins by cutting capacity to match demand. Even so, it is hard to believe that at 174p, or six times next year’s forecast earnings, and yielding nearly 6 per cent, the shares cannot go lower still. Once again, avoid.

Charlemagne

Two years after floating, Charlemagne Capital appears to have lost its crown.

Only one of the funds run by the emerging markets asset manager is showing a gain so far this year, and the performance fees it has booked for the six months to June 30 have collapsed from $16.4 million in 2007 to $3.3 million. That is not surprising given that Charlemagne is as badly exposed as any conventional equity fund manager in a bear market. Less than 10 per cent of its $5.7 billion of assets under management are allocated to hedge funds, and it is these investment strategies that are working best.

If there was a comfort in yesterday’s first-half trading update it is that management fees rose by a 32 per cent year on year, putting this less volatile component of Charlemagne’s profits on track to meet forecasts. But the problem is that a fund manager needs to generate above-average returns and Charlemagne is not – its funds lost 12.2 per cent on performance over the period, against an 11.8 per cent decline in global emerging markets. The rate at which Charlemagne is winning institutional mandates is showing signs of slowing: from $249 million in the first quarter to $108 million in the second.

At 36¾p, down nearly two thirds since float, Charlemagne, which has a history paying special dividends, sits at eight times earnings and yields a prospective 9 per cent. But the risk of further falls in performance fees, and the higher yields on offer from more liquid stocks, suggest there is better value elsewhere.

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