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Risk and reward: The cost of investing in drinks companies

A standby as a Christmas present has always been a bottle or, depending on your generosity, a case of a well chosen wine or spirit. However, you still have time to do better this year by buying the recipient a stake in the company that produces liquid gifts.

That adds the benefits of not “being gone when it’s gone” plus the potential of  growing in value to provide added enjoyment in Christmases to come.

If you have the opportunity to get in at the start-up of a craft producer there is scope to make serious money, but look at how many fledgling brewers and distillers have gone to the wall this year through no fault of their own. Many backers have lost their stakes in what were promising enterprises before coronavirus struck.

On the other hand, how wonderful it would have been to be an early investor in Fevertree, whose shares were just over £5 five Christmases ago but now cost more than £23 (They were at £38 in 2018).

It’s all about risk, reward and being lucky.

So on the assumption that you wish your gift to be a fairly safe bet, it is probable that you will look at long-established companies, with an international market and diverse product range. And to keep future costs down your chosen recipient, it would be wise to consider companies quoted on the London market or at least available via a UK broker.     

As the drinks business has noted throughout the autumn, shares in the global beverage alcohol groups have remained comparatively resilient to the ravages of the global pandemic. After being battered in the spring and early summer, almost all have returned to or above their pre-Covid levels.

Analysts are confident that all the major players will return to the growth path in 2021. True, global travel will remain depressed but even so,  rapidly revised consumer repertoires point conclusively to increased premiumisation and wider profit margins.

Those in the big league may not be where they expected before the pandemic struck, but all  predictions are that in the next three or four years personal spending power will return and drinkers will be willing to pay more for better quality, more desirable products.

So the choice is yours. If you usually give Johnnie Walker or Bailey’s, a single share in Diageo will cost £29.50 (plus broker’s costs). Pernod Ricard at €157 (£143) could be for the Jameson or Absolut lover, while LVMH at €500 (£450) might seem extravagant but not for a holding in the world’s premium luxury goods group, if you can afford Dom Perignon or Cheval Blanc in the first place.

For fans of Rémy Martin cognac a share in Remy Cointreau will cost €151 (£137) but at the cheaper end of the spectrum, Davide Campari Milano will cost you just €9.50 (£8.60), about half the price of a bottle of its Aperol aperitif.

Jim Beam fans can buy into US parent group Brown Forman for US$80 (£60) while those who think cannabis infused concoctions are the next big thing can indulge themselves in Constellation Brands for $220 (£163). 

And if you are brave, some believe that all the bad news about exports to China is already priced into Treasury Wine Estates at AU$9 (£5.20), about what you would pay for the cheapest Australian wine in a supermarket.

There are two other factors to take into account, dividends and perks. Diageo and Brown Forman, for instance, have a long track record of every year increasing dividend payouts to shareholders, while if you can get to an annual meeting (when they return from Zoom) boards are keen to ensure their backers are suitably refreshed.

Indeed, back in the day, the late Sir Derrick Holden-Brown, then chairman of Allied Lyons, was urged by shareholders to cut short questions from the floor because they were being prevented from attacking the Harvey’s Bristol Cream in the free bar which opened at the end of proceedings!

Or what about buying into the on-trade? Britain’s pubs have taken a hammering in 2020, closing at their fastest rate ever. But inevitably it is the weakest that are going to the wall first. Those who survive will pick up a good slice of the trade of those who fail.

You can buy into the biggest independent pub chain, JD Wetherspoon for just over a tenner, the price of a small round.

Both Fuller Smith and Turner and Young & Co have ceased to be brewers but both have retained extensive premium estates inside the high margin M25 boundary.

Fullers will cost you £6.90 (the price of a medium glass of wine) while Young’s comes in at £11.25. Only a few months ago they reached £9.60 and £18 respectively, so there is the prospect of raising a glass when better times return.

And don’t overlook that the pubcos occasionally give shareholders discounts, especially on meals. Long gone, however, are the days when Youngs’  shareholders would be seen leaving the AGM bearing holdalls full  of smoked salmon or prime hams ‘liberated’ from the sumptuous post-meeting buffet.

Another inexpensive option is an initial subscription to one of the numerous wine clubs or a distributor such as Naked Wines, which seeks to support independent wine makers the world over.

Finally, membership of The Wine Society costs just £40 (the share can be passed on as a legacy) and the new member gets a £20 discount on a first order.    

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