Beverage Picks: Will Champagne Sparkle?
Analysts at Dresdner Kleinwort upgraded alcoholic beverage company Diageo to "add" from "hold", expressing confidence in the company's strength, and maintained their "buy" recommendation for Carlsberg, despite fears over weakness from Russian consumers.
Dresdner Kleinwort also initiated coverage for three stocks of smaller French companies making champagne, which they say are good long-term plays.
Diageo's confirmation in October of its 7-8 percent organic profit growth "has given us renewed confidence that Diageo's portfolio is holding up despite a weakening macro environment," Dresdner Kleinwort wrote in a market research note.
The danger of too much reliance on a slowing Russian market for Carlsberg is partly offset by the fact that the company retains the market share gains made in the first half of the year, the analysts wrote. They expect a 2 percent growth for the Russian beer market and a 5 percent growth from Carlsberg.
The three "pure play champagne stocks" -- Laurent-Perrier, Boizel Chanoine and Vranken-Pommery Monopole -- should be treated cautiously in the near term but the long term prospects are good, as the vineyards surface remains constant, Dresdner Kleinwort analysts wrote.
Laurent-Perrier, which sells over 14 million bottles per year, has seen its earnings per share grow nearly 22 percent since 2003, while its operating margins rose 9.4 percent over the same period.
Boizel Chanoine, the second-larges champagne company in France, sells wines in the country and abroad. Its earnings per share grew at 56 percent per year between 2005 and 2007, while Vranken-Pommery Monopole, whose shares fell 51 percent since the beginning of the year, is the cheapest pure champagne play, the analysts wrote.