BUSINESS STOCKMARKET

Takeover talk from bullish investors…Absolut fuels speculation…W&D sees opportunity in traditional ales…Competition gets to irn-bru

Takeover talk from bullish investors

When the US coughs, the UK catches influenza. This used to be the case on the economic front, but no longer. Except, that is, in the drinks sector, which bubbles ahead on bid speculation in a stockmarket that is dominated by bullish investors in the UK while the US market hits record highs.

Strong bid prospect Britvic, the fizzy drink group, saw its share price froth up due to takeover speculation – although Permira has ruled out making any bid other than one recommended by the Britvic board. This could be made within the next six months. Permira is a strong favourite to take over Britvic and has reserved the right to come back should a competitor bid for Britvic. The market dealers reckon Permira was poised to make a bid of £600m but withdrew when the news leaked out. A strong  competitor is French private equity house PAI Partners.

Latest information from Britvic is that sales of still drinks rose by 7.5 % and carbonated drinks slipped 5.8 % for the 20 weeks to September 2006.

Britvic – maker of Robinsons squash and Tango – has suffered from the current healthy drinking trend as customers turn to smoothies, fresh fruit juices and water. Britvic is also driving into the booming water market by launching a number of brands.

The City scribblers updated their full year forecasts for Britvic’s profits, which were boosted by hot summer weather and The World Cup.

By way of contrast PepsiAmerica sounded a profit warning and its shares dropped like a stone. In the UK, Cadbury Schweppes saw its shares slip back in sympathy as dealers woke up to the fact that Cadbury’s drinks portfolio in the US includes Dr Pepper and 7 Up.

Absolut fuels speculation

There was intense speculation in City wine bars after Pernod Ricard confirmed that it would “have a very close look” at Absolut, the Swedish vodka brand, if it is put up for sale. The owner of Absolut is V&S Vin & Sprit, which is state-controlled  and may be sold off or floated on the market now that a new government, the centre-right Alliance for Sweden, has come to power.

The market’s favourite to win Absolut, which could go for as much as £2.7 billion, is Fortune Brands, the owner of Jim Beam, which has existing links with Vin & Sprit in the US. Campari was also considering bidding and was raising the capital to put in an offer when the Garavoglia family, which owns 51% of Campari, fell into litigation and the fundraising was abandoned.

Pernod Ricard posted its full year results with net profit up from E93m to E670m on sales up 70% to E6.07bn. Pernod Ricard has spent less than expected on integrating Allied Domecq, which it bought last year, although the City dealers have niggling worries about the increase in advertising expenditure from 14.5% of sales to 16.3%.

W&D sees opportunity in traditional ales

Wolverhampton & Dudley reckons that the traditional ale market offers a growth opportunity by default as major brewers focus on lagers instead of traditional ales. Wolverhampton & Dudley has two brands of traditional ale: Marston’s Pedigree and Jennings Cumberland Ale. A spokesman says the market for ale has fallen by 8% over the last twelve months, so Wolverhampton’s increased share of the UK premium ale market from 14% to 16% is all the more impressive.

Big brewers have devoted themselves to ‘smooth flow ale’ (beer not brewed in real casks) and dealers speculate that this could be the cause of the sharp drop in traditional ale sales, which is balanced by the strength of cask sales.

Competition gets to irn-bru

IRN-BRU, Scotland’s favourite drink after whisky (with which it is often mixed), is facing aggressive competition in the carbonated drinks sector. As a result it has seen total volumes fall by 3%. Latest results from A.G.Barr, IRN-BRU’s maker, have bucked the drop in volumes and posted a 28% increase in pre-tax profits to £10.2 million in its latest half year on sales 9% ahead at £72.2m.

Brokers are forecasting full year profits, before any exceptional hits, of £18.8m against £17.9m. Results will be helped by the astute acquisition of Strathmore, the bottled water company.

The latest interim profit was inflated with a one off exceptional gain of £1.5m. Despite this, underlying performance was better than expected and A.G.Barr has taken the cash outlay on a new plant at Cumbernauld in its stride. The company is focusing on growth areas by launching IRN-BRU 32, an energy drink, which has proved particularly successful over the hot summer.

© db November 2006