Fosters - AFR article

C O M P A N I E S
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Pre-mixed spirits leave beer feeling flat
May 30
Simon Evans


The rapid growth of ready-to-drink alcoholic beverages is likely to wipe out any potential increase in beer market volumes in Australasia in 2002, according to a report on the alcohol sector.

Stockbroking house ABN Amro suggests in a 180-page Global Beer Industry report that RTDs will continue to cannibalise beer's volume growth, and that 70 per cent of their market-share growth comes at the expense of beer. The research says RTDs should continue to grow rapidly across the globe in the next two years.


ABN Amro predicts an increasing trend of brewing companies taking a "holistic view" of their distribution networks and moving to license strong spirits brands and sell them through their channels. "RTDs are therefore as much an opportunity as they are a threat," the report states.

The report also predicts that organic growth in earnings before interest, tax and amortisation across the world's big beer players will be only about 6 per cent each year over the next decade on a compound basis, but consolidation in the sector could trigger an acceleration in that growth rate to 9 per cent.

The report raises the possibility of the creation of an Asian giant, led by Japanese brewer Kirin and its stakes in Lion Nathan and San Miguel. Kirin holds a 46 per cent stake in Lion and also a 15 per cent holding in the Philippines-based San Miguel. Foster's Group is given a positive rating in the report, with ABN Amro believing that at a share price of $4.77 it trades at a 12 per cent discount to the broker's discounted cash-flow valuation.



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Lion's beer performance in Australia is given the thumbs-up, although its wine strategy is criticised for being "sub-scale", with a risk of further acquisitions overhanging the share price. Foster's shares gained 3¢ yesterday and Lion's slipped 4¢. Both closed at $4.66.