OREANDA-NEWS. April 12, 2010. CEDC signed a binding agreement for the sale of 100% of its distribution business in Poland to Eurocash SA for USD139m in cash. The transaction is expected to be closed in early 3Q10, reported the press-centre of OTKRITIE FC.

View: We view the news on disposition of the Polish distribution business as positive for CEDC for the following reasons:

Distribution dilutes margins of the overall business. Following the disposition of the distribution business, CEDC sees its EBITDA margins moving closer to 25%. Higher margins should have positive implications for CEDC's valuation.

The disposition of the pure distribution business will leave CEDC a more classical spirits company focused on brands and production. We believe this will spark interest in the company.

The move monetizes value of the low growth/low margin business.

\\$139m in cash, coupled with USD 187m in free cash flows in 2010, provides CEDC with sufficient financial power to acquire Nemiroff (which we value at USD 330- USD 350m). While CEDC has not disclosed transaction multiples, we believe the transaction should occur at multiples close to (or higher than) those at which Eurocash is currently trading (2010 P/Sales of 0.34, P/E of 18.9x)

Valuation: The stock currently trades at a 2010 EV/EBITDA of 11.3x, which is a 27% discount to EM peers.

Action: We reaffirm CEDC as our top pick in consumer sector and believe the stock should react positively to the news.