Bottom Line: Two sides to cider

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The Independent Online
AS FAR as the drinks sector goes, cider is definitely the place to be. The two leading players, Taunton Cider and HP Bulmer, have gloried in growing demand. Total cider consumption has grown by 36 per cent in the past five years.

Shareholders in both companies have profited too. The brewing and distilling sector has underperformed the FT All Share index by 25 per cent during the past 12 months. But shares in Taunton and Bulmer have bucked that trend to outperform the index by 20 per cent.

There are important differences between Taunton and Bulmer, however. Taunton dominates the premium bottled cider market - particularly with its Diamond White brand. The attraction of the premium market is that it commands better profit margins. But its middle market Dry Blackthorn draught cider has been losing ground.

In contrast, Bulmer's Strongbow draught cider is gaining popularity. So too is Scrumpy Jack, its strong cider. Also unlike Taunton, Bulmer has footholds in Europe and Australia.

Bulmer is not just a cider business. It distributes beer and soft drinks, and has a pectin operation. The profit contribution of non-cider operations fell last year, but the overall increase only goes to show how strong Bulmer has been in cider. And while the non-cider side is a drag now, it should provide useful breadth in the future.

Both companies' shares are trading on above-average multiples. Their ratings are well deserved, but of the two, buy Bulmer.