The Investment Column: Little cheer for Highland

Little cheer for Highland

Investors in Highland Distilleries have had little to raise a glass to in recent months. In Famous Grouse and Macallan it has two of the best premium whisky brands in the world. However, while its products have been able to hold their own, the shares have lost their premium rating. The stock has fallen from 372.5p since May and has under performed the market by more than 30 per cent over the last 12 months.

Currency fears are partly to blame. Highland has been on a world-wide export drive. For the first time last year most of its sales came from overseas and sterling's strength wiped pounds 2.3m off profits in the year to August. However, the falling pound is now relieving that pressure.

The recent acquisition of Macallan has also raised a few eyebrows in the City. However, Macallan's profits came in ahead of expectations in the year, rising to pounds 10.3m compared with pounds 7.1m in 1995, and the deal has not dented earnings per share.

That aside, the real concern going forward is how Highland will fare with the inevitable turmoil in the world's spirits market after the mega- merger between Grand Metropolitan and Guinness. Will it, for example, be able to compete with the marketing clout of the new drinks giant as it seeks to expand in markets around the world? After all, it is much easier to order your whole spirits supply from one source than to buy a brand here and there.

Of course, Highland could actually benefit from the alliance. It may be able to pick up a brand or two that GrandMet and Guinness are forced to shed by competition authorities. The deal could also force other competitors to get their act together, raising the prospect that Highland may fortify its already close links with Remy-Martin.

Despite the uncertainties, Highland will continue to be a steady performer. The strength of its brands give it an obvious advantage over cheaper, standard whiskies which have been hit by the surge in in the number of discounted supermarket drinks.

Underlying profits rose 7 per cent to pounds 43.1m and the shares edged up 1.5p to 287.5p. Greig Middleton forecasts current-year profits of pounds 45.5m, which puts the shares on a prospective price-earnings ratio of 13. Hold on.