Private investor: Raise a glass to the economic slow down
Saturday 03 November 2007
Globalisation is a curious thing. A couple of weeks ago I found myself in a bar in Kazakhstan (like you do) downing a bottle of perfectly acceptable Kazakh beer. By the way, I have to point out that I only met one person in the country who looked anything like Borat, though that person was the prime minister, so make of that what you will. Also by the way, Kazakhstan was unfairly traduced by Sacha Baron Cohen in his hilarious film, but I would hope you'd gathered that by now.
Anyway, back to the beer. I hadn't given its provenance much thought until I came back to Blighty and started to read the coverage of the takeover bid for Scottish & Newcastle, which is shaping up to be one of those great long running City sagas. Naturally I was interested in S&N because I'd bought a few shares in the company a few years ago, mainly because of its expansion in Russia and the ex-USSR CIS states, such as – you've guessed it – Kazakhstan.
Apparently, Baltika and its associated brews are doing great business out east – just as I thought they would. The Russians are moving from their traditional taste for vodka towards lagers. Funny how they're moving in that direction just as so many young Britons are finding an unquenchable thirst for vodka of every variety. Globalisation and melding of cultures again, I suppose.
As usual, my prescience has only seen me right for a few years. I bought the shares in 2002 and again in 2006 at about 500p and 600p respectively, and they haven't proved spectacular performers, even now the price is approaching the 800p mark, a comfortable margin above the Carlsberg/Heineken bid of 720p a share. Nice to see the markets agree with me that my asset is worth more than that.
The complicating factor, and a bit of a salvation, is that the Baltika breweries are in a joint venture between Scottish & Newcastle and Carlsberg, and there is some sort of immensely complicated clause in that contract that pretty much snookers Carlsberg's bid. Hence the premium the shares are trading at.
Like my colleague Derek Pain, who has also been an enthusiast for the shares, I can't help feeling that, whatever becomes of the Carlsberg/Heineken move, Scottish & Newcastle is probably not going to remain an independent entity for long. I saw some coverage over the weekend that the Scottish National Party thinks that, if it were leading an independent Scotland, precious national assets such as Scottish & Newcastle Breweries would be protected by a more activist Scottish Department of Trade and Industry (or whatever it would be called).
Nice idea, but sadly misguided in our globalised world. All that would do is entrench a relatively small, uncompetitive firm. I say that as a loyal shareholder who'd rather see it keep ploughing its furrow and reaping the rewards of its wisdom in getting into the world's fastest growing beer market so early and so decisively. Natural justice says they (me) should take the dividends from that; economic sense tells me to let the brewing industry sort its own problems out.
Apart from the Russian venture, S&N has some excellent brands such as Fosters, Kronenbourg and, of course, the great Newcastle Brown Ale, now sadly no longer brewed in Newcastle itself ( I didn't notice S&N getting too emotional about shutting that brewery – doubly strange as they'd lobbied so hard earlier for it to be one of the EU's geographically protected brands, like Parma ham or Champagne.
I'm also quite attracted to drinks companies now because of the double effects of the smoking ban and the slow down in the economy. It goes like this. When the Irish betrayed the great traditions of the smoky Irish boozer and went for a smoking ban plenty of those old bars shut down as people started drinking at home rather than the pub; bad news for the pub firms but not so depressing for the brewers.
Second, the slowdown. Again the usual first casualty of a more cautious public is the leisure sector. Trips to the cinema, pub or restaurant are easily postponed while you're feeling the pinch. However, on the weekly trip to the supermarket you might opt instead to put a nice cheap six pack or bottle of Aussie red in the basket to compensate for those nights out you can't quite afford just now. Again, great news for the drinks companies that I'm investing in: S&N, Diageo, Pernod Ricard.
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