Face to face with Andy Dunn, product specialist, Baillie Gifford Japanese
Meeting summary This was a one-to-one, in-person update with Andy Dunn, who talked through Baillie...
With the world’s most expensive bottle of ‘plonk’ – a Screaming Eagle Cabernet 1992 – selling for $500,000 and a bottle of D’Amalfi Limoncello Supreme (with an 18.5-carat diamond and three single-cut 13-carat diamonds on its neck) going for some $34 million at auction, it’s perhaps not surprising that many wealthy collectors like investing in wines and spirits.
But if you are anything like the team at FundCalibre, neither beverage tends to stay in the house long enough to appreciate in value – they are consumed all too quickly, especially at this time of year!
So is there a less tempting way to invest in your favourite tipple? Perhaps by investing in the shares of alcohol producers and distributors.
Alcohol sales fall in 2020
Despite fears from health professionals that alcohol consumption would increase during lockdown, the annual market report by the Wine and Spirit Trade Association shows that the closure of pubs and restaurants and a rising interest in non-alcoholic drinks led to lower sales in 2020. “It’s a myth that people are drinking more during lockdown,” the WSTA’s chief executive, Miles Beale, said in a press release. Beer sales fell 10%, while wine sales dropped 5%.
But with the hope that the vaccine roll out in 2021 will lead us back on the path to normality and a more sociable future, which alcohol stocks are the fund managers backing? We asked a few:
Italian Wine Brands: Will Searle, deputy manager, Marlborough European Multi-Cap
“If you buy your wine from Aldi, you may be enjoying a bottle or two produced by Italian Wine Brands over the festive season. The company buys grapes from Italian vineyards and produces more than 60 million bottles of wine a year, which are sold around the world. Around 90% of its wine is sold under its own brands, which helps maintain good pricing levels and its expertise in advising retailers about how to increase sales of more expensive wines gives the business a further competitive edge. Online sales direct to consumers have been growing significantly and the company has been a beneficiary of the closure of restaurants and bars during the pandemic, with people buying more wine to drink at home, which helped drive up sales by nearly 25% in the first half of the year.”
Naked Wine: Hugh Sergeant, manager, ES R&M UK Recovery
“Naked Wines’ business model – connecting subscription customers to independent winemakers – is disrupting the wine industry by cutting out the middleman to provide quality products at preferential prices. Market share gains have been driven by the shift to online catalysed by the pandemic, whilst expansion into the US and Australia provides a long runway for growth. Scale benefits from a growing, sticky customer base are enabling increased investment to strengthen its market position.”
LVMH: John Bennett, manager, Janus Henderson European Selected Opportunities
“The ‘Wines and Spirits’ category accounts for around 10% of LVMH sales, so is often overlooked in favour of its fashion-oriented activities. However, with strong brands and market shares in Champagne and Cognac (through its 66% ownership of Moet Hennessey), the business bears the same hallmarks of the broader LVMH model: scale, premiumisation and exposure to both profitable developed markets such as the US and high growth emerging markets like China.”
Stock Spirits: Alex Savvides, manager, JOHCM UK Dynamic
“Whilst drinks company Stock Spirits Group isn’t well-known in the UK, it is a market leader in Eastern Europe. A relatively new management team has transformed the company operationally over the last few years, delivering impressive revenue growth despite Covid-19 headwinds and material duty increases in many of its markets. With a strong balance sheet, a great portfolio of brands and its shares trading at a big discount to rivals Diageo and Pernod-Ricard, it doesn’t take many drinks to get excited about this one!”
Fevertree: Hugh Sergeant, manager, ES R&M UK Recovery
“We view Fevertree, the pioneer and global market leader in premium mixers, as a company with both Quality and Growth characteristics. Their capital light business model with outsourced bottling and distribution delivers high return on capital and the business has compounded exceptionally high levels of growth. We expect future growth to be underpinned by the substantial US opportunity.”
Hear what Ben Moore, manager of Threadneedle European Select, had to say about Campari being a vital ingredient for bartenders on this podcast:
A-B InBev: Carl Stick, manager, Rathbone Income
“A-B InBev (ABI) is the undisputed king of beers. It accounts for almost 30% of global beer volumes and an even larger share of the industry’s revenues and profits. It owns many of the most valuable beer brands in the world including Budweiser, Corona and Stella Artois. ABI has been hit hard by the pandemic. Bar and restaurant closures have only been partially offset by more ‘at home’ drinking. With sales and profits set to decline in 2020, the company’s debt pile has been worrying some investors. However, we are more sanguine. Debt maturities have been extended, the company is highly cash generative, its valuation is attractive, and it should be a key beneficiary of the global economy reopening.”
Heineken: Richard Kaye, manager, Comgest Growth Europe ex UK
“Heineken is the second largest brewer in the world with 10% global market share and 27% market share in the international premium segment. Two of Heineken’s key competitive advantages are its strong distribution platform and route to market as a result of its very large scale, and the power of its brands, supported by high spending on advertising and promotion. We also like the fact that it is family owned, which provides a long-term focus in the way the company is managed and has led to low staff turnover with a noteworthy portion of senior managers team being Heineken lifers. Heineken has a particularly strong presence in markets which should see faster long-term structural growth such as Vietnam, Mexico and Brazil, with emerging markets representing 54% of profits in 2019.”
James Thomson, manager of Rathbone Global Opportunities, also likes Heineken: “Heineken has struggled this year as bars and restaurants has been shut, but as we start to emerge from the pandemic, this should be a tailwind to growth in 2021,” he said. “Somewhat surprisingly, despite the trend in increased home consumption of alcohol, it’s in fact Heineken 0.0 which has been performing exceptionally well with double digit growth despite Covid-19. This is now at the forefront of the low and no alcohol trend.”
Asahi: Matthew Brett, manager, Baillie Gifford Japanese
“Some consumer products offer consistent and durable growth through brand loyalty, customer stickiness and premiumisation: beer is one of those segments and Asahi Group Holdings is especially well placed given its orientation towards premium brands and strong franchises in Japan, Australia and Europe. Through its scale, manufacturing know how and expertise in distribution it has successfully acquired and integrated niche beer brands, notably Peroni, Grolsch and Pilsner Urquel, and become increasingly profitable over time. Asahi has a consistent record of delivering high single digit profit grown and recently it has enjoyed a rise in profitability and returns on capital (achieving double-digit levels for the past several years). The shares also offer an above market yield and pay-out ratio of above 50%. In spite of these attractions, the shares trade at a substantial discount to peers Carlsberg and Heineken.”