Derek Pain: I've taken a chance to Stock up on shares in a drinks producer

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The Independent Online

Stock Spirits is relatively new to the stock market. It is part of the deluge of flotations that some believe have helped drain investors' cash and contributed to the weakness that has afflicted many shares of late.

As the name implies, it is not an overpriced internet business but a traditional drinks producer.

Although headquartered in this country, Stock's operations are mostly in Eastern and central Europe. The shares arrived, via an initial public offering (a rather unusual avenue in these high-speed days), in November at 235p. They are, as I write, 278.75p after hitting 317p.

Of course, the Ukraine confrontation must cast a shadow over the company, but I am taking a chance and have added the shares to the no pain, no gain portfolio.

They will probably replace the TEG environmental group that I am considering relegating. But for the next few weeks at least TEG is reprieved.

Besides the Ukraine tension on its trading border, the drinks producer has had to contend with the departure of US investment group Oaktree Capital Management, the inspiration behind Stock 's creation. It followed up the float by placing its remaining 36.8 per cent stake.

Oaktree's disposal allowed some institutions to top up their holdings and I believe it is significant that six of them now control about half of the company.

Stock operates largely in Poland, the Czech Republic and Italy. It also has interests in Germany as well as several central European lands.

The group takes in a host of brands, many unknown in this country. Labels include Zoladkowa vodka as well as Stock brandy, once sold here by the now near-forgotten Watney's brewing giant. It also produces Amaretto liqueur, gin and vermouth and a spirit called Printer's whisky. Capitalisation is £555.5m.

Last year the group suffered a £8.7m pre-tax loss compared with a £29m profit in the previous 12 months. But such an outturn is deceptive. Operating profits, which actually advanced 8 per cent, were obliterated by a series of oneoff costs.

They included flotation expenses and a range of special charges, some of which relate to Stock's recent private-equity ownership.

A European enterprise, reporting in euros but hopefully eventually paying any dividends in sterling to British investors, is, I agree, a surprise toast for the portfolio. But I like much about Stock and the shares are not expensive.

A large chunk of the flotation inflow was used to cut debt and I suspect in the fragmented Continental drinks market the group could – and should – absorb many smaller players. And I would not be surprised if some of its brands enjoy a more-prominent role in this country. Perhaps acquisitions will not be confined to Europe.

It has, of course, a long way to go before challenging the giants of the industry. Stock is already being referred to as a mini-Diageo, the spirits behemoth worth some £46bn.

Ms Lesley Jackson, finance director, has a more cautious view. She is reported to have said: "We are not the next Apple or Dyson but we are steady and solid".

The only portfolio constituent to make any waves since my last column is Avation which has renegotiated some of its debt, saving $1.6m (around £1m) a year. The aircraft-leasing group is the only other portfolio member that does not report in sterling. It used to, but now uses US dollars as a barometer of its performance, although dividends to shareholders on the London register are still paid in sterling.

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