Share price performance shows industry’s strength

Share prices of the global drinks giants have been among the best performers on world stock markets this year.

This partly reflects their resilience and diversity in global markets but also in part their success in recovering from the financial crisis of 2008.

Only if you had your money in Constellation Brands or LVMH would you have seen the value of your shares diminish significantly. So far this year Constellation has lost 11% while LVMH, the parent of Moët Hennessy, is 15% lower.

But special factors affect both companies. Constellation is emerging from a period of drastic overhaul, especially in Australia, the benefits of which are only just becoming apparent. Shareholders will be looking for further encouragement in the third quarter results due on 5 January.

Meanwhile LVMH has been affected by speculation that it is gearing up to enter a bitter (and expensive) battle for control of Hermès. On its own, the French company’s drinks division has performed strongly on the back of rising markets for Champagne and Cognac.

Those with the biggest smiles are shareholders of Diageo, which has gained almost 14% on the back of record sales and dividends and a forecast of organic growth of about 6% in its current financial year.

There has been comment during the year that the world’s biggest alcohol group may not look as dynamic as some of its rivals, but while the London stock market has fallen by more than 7% this year, Diageo’s shareholders have put their faith in the strength of the company’s portfolio, which has been underpinned by a series of strategic deals, notably in China, Turkey and Africa.

While Pernod Ricard is forecasting a similar organic performance to Diageo in the year to the end of next June, its shares have shed 5% this year – a loss that is effectively balanced out by the French group’s increased dividend.

Pernod Ricard is in transition following the 2008 purchase of Vin & Sprit. It has effectively ruled itself out of acquisitions for the time being as it pays down debt, but there are fears that a weak euro could affect profitability.

Overall the Paris market has remained flat this year, despite gyrations reflecting concerns about the global economic backdrop. However, Rémy Cointreau’s shares have risen by about 13% as it reaps the rewards of taking control of its own distribution network, especially in Asia.

Having gone through a period of transition and selling its Champagne division, the company has a much strengthened balance sheet and a sizeable war chest with which to fund niche acquisitions.

Davide Campari is also looking for acquisitions to further strengthen its portfolio following the very successful integration of Wild Turkey and the extra doors the bourbon has opened in world markets. The Italian group’s shares are 2.6% ahead.

Burgeoning sales of Jack Daniel’s, as reported earlier this week by the drinks business, are behind the late spurt in Brown Forman’s shares on Wall Street.

While the US stock market is about 2% ahead this year, the December results from Brown Forman have pushed its shares up by almost 12% since the start of January; in early August they were 10% below where they stood on New Year’s Day.

This was the year when two companies, Beam and Treasury Wine Estates, threw off the shackles of being part of larger groups.

Once Fortune Brands had separated its household hardware division and sold its golf equipment division for almost US$2 billion, it changed its name in early October to Beam Inc to focus solely on its spirits interests headed by the eponymous bourbon.

Since then the shares have risen by almost 20%, buoyed by the company’s less-encumbered growth potential and continuing speculation that it could be subject to a break-up bid that could channel an extra US$2bn into shareholders’ pockets. Either way, investors see it as a winner.

Treasury came into existence when Australia’s Foster’s brewery drew a line under its disastrous diversification into wine and gave a separate listing to the long-troubled division in mid-summer.

Since then Foster’s has been swallowed by SABMiller and Treasury has set a path to growth via the Asian market, especially China, and reducing low-margin bulk production. Since its separate flotation in Australia, Treasury is 10% ahead.