Remy tops the 2010 class

It is not a good idea to base investments on the calendar, but the end of the year is a time to take stock. So who were the winners and losers among the global drinks groups and how did their shares fare in 2010?

Top of the class in the end of term report is Rémy Cointreau, whose shares put on 39% while the overall Paris market gained a sluggish 3%.

The shares moved steadily upwards during the year as investors increasingly noted improved trading and margins as the fruits of leaving the Maxxium consortium and the decision to focus increasingly on the burgeoning Far Eastern market, where Cognac is driving the group’s growth, became increasingly evident. The recent decision to put its Champagne brands up for sale gave added impetus to the shares.

The transformational benefits of owning Wild Turkey are showing through in results from Davide Campari Milano, whose shares gained almost 22%. Strong profits growth and cash flow mean that Campari has about €400 million available for further acquisitions to increase the diversity of its brand portfolio and its record with Wild Turkey is encouraging.

Speculation has it that some of the Italian group’s cash might be spent on something from Fortune Brand’s Beam Global portfolio. Fortune itself had performed so poorly during the recession that it was hardly surprising that activist investors spotted a bargain and jumped on board during 2010.

After a dismal first half of the year during which they fell by 10%, Fortune’s shares closed the year up by 42%, spurred by this month’s news that Beam Global, which generates 80% of the profits, is to be split from the rest of the group and given a separate stock market quotation. Where the shares go in 2011 will depend largely on rumour and speculation about a potential bid for Beam Global itself.

Much the same applied to Constellation Brands. The world’s biggest wine producer had been hit so hard by the recession that its rationalisation in Australia and Europe could hardly fail to encourage bargain hunters to pick up the shares. While Wall Street has gained a respectable 9.5% this year as the world economy began to pick up momentum, Constellation has put on 38% so far.

Diageo is a leviathan, its very size meaning that the world’s biggest alcoholic drinks company will largely reflect the mood of global consumers, no matter how nimble-footed the management. The London market put on 8.7% but Diageo eclipsed that by gaining 9%. It increased its market share in most sectors, further adding to profitability to bolster its solid dividend and £2 billion cash flow mountain. Diageo, it seems, is everyone’s favourite to make a big takeover in 2011; certainly its size enables it to influence any significant reorganisation in the sector.

The same is almost true of Pernod Ricard; its interest (or lack of it) in any deal will affect both the shape and price. The facts that the French group continued to grow profitability in 2010 despite a strongly increased marketing spend, and that it paid down debt associated with the Absolut purchase more quickly than expected, pushed the shares up by 14% in the year.

So in many ways 2010 was a year of solid performance in the global drinks sector but one group’s end of term report still reads “must do better”.

Beleaguered shareholders in Foster’s Group must be wondering when its fortunes will pick up following the disastrous purchase of Southcorp in 2005. Strong beer sales and the revised wine strategy had pushed the shares up by about 15% by late summer, but now they are just below where they started the year. The rejection of a private equity bid for the wine arm followed by what seems a cheap price achieved by Pernod Ricard in offloading some New Zealand interests has raised awkward questions about potential value. The present team are not inspiring investors.

Finance on Friday, 17.12.2010