From funding start-ups to buying shares in global drinks giants: Investing in drink can reap rewards in good times and bad
- Investors say there is much value in investing in drinks
- People can invest directly in the shares of many listed drinks companies
- It is also possible to spread your risk via investment funds
Shoppers are already stocking up on their favourite Christmas tipples but investors might think there’s more value in investing in drinks than downing them.
The drinks sector is a big industry and there are a number of ways to invest,’ says Darius McDermott, managing director of Chelsea Financial Services.
‘It’s quite a stable industry as in an economic downturn people are more likely to give up luxuries rather than their occasional bottle of wine.’
From funding start-ups to buying shares in global drinks giants, there are as many investment options as drinks in your local.
You can invest directly in the shares of many listed drinks companies or spread your risk via investment funds
You can invest directly in the shares of many listed drinks companies such as Diageo, Heineken and Pernod Ricard, or spread your risk via investment funds and following the examples of experienced managers who are – literally in this case – putting their money where their mouth is.
TEMPTING INVESTMENTS FROM GLOBAL BRANDS
Heineken, the Dutch beer giant once famed for its ‘refreshes the parts other beers cannot reach’ advertising slogan, is a top ten holding in investment funds Lindsell Train UK Equity, Comgest Growth Europe ex UK and Morgan Stanley Global Brands.
The Morgan Stanley fund initially purchased Heineken in the first quarter of last year, reasoning that the company was improving under boss Jean-Francois van Boxmeer.
Its fund manager now says Heineken ‘has become more balanced by both brand and geography and is no longer so dependent on the Heineken brand and the declining Western European market.’
The manager adds: ‘It now has enough investment in marketing, with spend at all-time highs as a percentage of sales. Culturally, it is a genuinely global company rather than a collection of country fiefdoms.’
Comgest co-manager Alistair Wittet says: ‘We like Heineken’s focus on premium beer which continues to outgrow the beer market overall, while we see more immediately an opportunity to capture market share against an overindebted and cost focused competitor in Ab InBev.’
… or sample the mixer that truly went with a fizz
Success story: Fever-Tree
It’s not alcohol but it wouldn’t be the success story it is without it.
From its launch in 2004 Fever Tree has become a ubiquitous part of the pub scene. Its challenge to the unquestioned dominance of market leader Schweppes with its natural quinine tonic water took many by surprise but its success has been phenomenal.
It is now sold in 75 countries worldwide and its shares, floated on the stock market for 165p in 2014 are now worth about £24, having reached a peak of more than £38 a year ago.
‘The question is whether they can continue to grow,’ says Darius McDermott of Chelsea Financial Services.
‘The next big challenge for them is breaking into the US market which is more focused on dark mixers for drinks such as whisky and rum, and whether they can continue to be innovative. The shares are certainly more attractive at £25 than nearer £40.’
Anheuser-Busch InBev, the world’s largest brewer, recently cut its dividend but that hasn’t deterred Carl Stick, manager of fund Rathbone Income, from increasing his holding.
He says: ‘Investors have been worried about the high level of debt, but its management are more relaxed. They decided they were not being rewarded for paying a high dividend to shareholders, so instead decided to cut it and pay down some of the money owed.
‘To me this makes it a more attractive business and I welcome the move. I have since topped up the fund’s holding as the dividend growth potential from here looks more promising.’
Spirits producer Pernod Ricard is another popular option with fund managers. Held by RWC Continental European Equity and Threadneedle European Select, it owns brands such as Beefeater gin, Absolut vodka, Malibu and Mumm Champagne.
David Dudding, manager of the Threadneedle fund says: ‘Pernod Ricard has significant exposure to India and China, which should contribute most of the growth in luxury spirits in the future.
‘It’s a leading player in a consolidated cognac market through Martell, has good cash flow and a solid balance sheet which could allow for share buybacks and bolt-on acquisitions.’
Diageo is also a firm favourite of professional investors. It is a holding in AXA Framlington UK Select Opportunities, Investec UK Alpha and Smith & Williamson Enterprise, to name a few. Its brands includes Guinness, Baileys, Johnnie Walker whisky and Captain Morgan rum.
According to Smith & Williamson: ‘Diageo is a stable compounder that has generated consistent top-line growth, margin expansion and growing cashflows, with a focus on value creation for shareholders.’
McDermott agrees: ‘Diageo has many brands which are diversified across different product areas.’
Brown-Forman is best known for its bourbon whiskey Jack Daniel’s and has a great heritage, according to Torcail Stewart, co-manager of Baillie Gifford Strategic Bond. He owns one of the company’s bonds in his portfolio.
He says: ‘The firm has been owned and managed by the Brown family since 1870. They have proved to be excellent long-term stewards of capital, running the business with low levels of debt, while successfully expanding beyond the US to create a global beverage brand.’
BUY IN TO UK PUB OPERATORS
Owners of pubs are also worth considering as investments. Greene King, one of Britain’s leading pub retailers and brewers, is a long-standing holding in The City of London Investment Trust. It was the subject of a takeover bid recently, and its shares rose sharply on the back of news it was being bought by CK Asset of Hong Kong.
Its Midlands rival Marston’s was recently rated a share ‘buy’ by broker The Share Centre with investment research analyst Tom Rosser saying that he believed the company’s debt reduction plan would boost its long-term sustainability.
Brexit and pub company JD Wetherspoon have become intertwined as founder Tim Martin is a vocal leave campaigner. The company recently came under the spotlight as it revealed a fall in profits. Its shares are still highly priced compared to the rest of the sector.
The City Pub Group is a holding in investment fund Marlborough UK Microcap Growth.
It owns and operates individually branded premium pubs in Southern England.
Marlborough says: ‘There are a number of factors that have drawn us to the company, namely its freehold property portfolio, the strong pipeline of potential deals and the central buying power of the wider group which should enable the more efficient operation of individually acquired pubs.
‘While the sector has faced headwinds in recent years with cost inflation, we believe well-managed and premium operators are well placed to continue growing through both like-for-like sales through their differentiated offering to consumers and by acquiring, refurbishing and improving new sites.’
GET EXPOSURE TO START-UP BREWERS
Maverick Scottish brewer BrewDog has had several rounds of fund raising
Investing in start-up drinks businesses has become popular on the back of the meteoric rise in craft breweries. Companies looking for early investment raise finance from crowd-funding sites or through the issue of ‘beer bonds’. Investor perks include discounts and access to exclusive shareholder events.
Maverick Scottish brewer BrewDog has had several rounds of fund raising via its ‘Equity for Punks’ campaign. Last year, it raised more than £26million of investment from 50,000 people, offering perks such as a 5 per cent discount in BrewDog bars, a 10 per cent online discount and invitations to shareholder days at the brewery.
Other distillers who have raised funds from retail investors include The Wild Beer Company and the East London Liquor company. Current investment opportunities include spirits maker Asterley Bros and Leicester-based gin maker Burleighs.
But the uncertainty of success in an increasingly crowded market means these investments are not for the risk averse.
McDermott say: ‘It’s a really saturated market. For every success such as BrewDog and Meantime, there are others you’ll never hear of again.’