Brewers make unspectacular gains for defensive investors

Friday 24th May 2002

BREWERS' SHARE PRICE STATISTICS

Company	17.5.02	30.11.01	% change Nov-May	2001/02 high	2001/02 low

DB Breweries	$6.00	$5.55	+7.5	$6.55	$4.70
Lion Nathan	$5.70	$5.54	+2.9	$6.07	$4.54

NZSE 40 cap index	$20.85	$20.72	+0.6	$21.43	$17.90

The smaller of the two listed brewing companies performed much better than its larger competitor in terms of key ratios for the six months ended March 31.

DB Breweries' (formerly DB Group) shareholders' equity was $NZ145.07 million at the end of the half-year, total assets were $NZ212.32 million and net profit was $NZ13-44 million.

Comparative figures for Lion Nathan were $A1.98 billion, $A3.88 billion and $A100.1 million.

The Australia-based group's operations in China have been a drag on profitability since they began but a company's total performance is what matters to its shareholders.

Lion Nathan's main listing in Australia requires it to include the return of net profit to shareholders' equity at the end of the particular reporting period.

The return was 5.1% across the whole company. DB Breweries' figure was 9.26% for the period, substantially higher than Lion's.

Share price data in the table shows each brewer's price did better than the NZSE 40 capital index in the six months since The National Business Review last reviewed the sector on December 7,2001.

That was hardly a great performance, given the index's minimal move over the period.

A direct comparison of share prices is unwise because Lion has dual listings but DB Breweries is confined to New Zealand.

Investors would look at two other matters when assessing merits of one brewer against the other.

DB Breweries has the advantage of providing New Zealand shareholders with fully imputed dividends, although non-resident shareholders get a supplementary dividend.

That factor was the main reason DB was shown in NBR's share table last week with a gross dividend of 41.79c from a 28c actual payment and a gross dividend yield of 6.9%.

Lion Nathan was shown with a 19.8c a share actual dividend, a 19.75c gross payment and actual and gross dividend yields of 3.4%.

Income-conscious New Zealand-based private investors could be inclined to favour DB for that reason, assuming they wanted a position in the brewing industry.

The industry is often described as "mature" but is also considered one of the defensive group to which people retreat when investment life gets rough.

Interim reports from each company for the six months ended March noted recent market improvement in both total volume and the continuing movement to what the brewers describe as "premium" brands.

DB managing director Brian Blake said the New Zealand beer market remained relatively stable during the period under review.

"However, sales in the premium sector continue to increases, presenting DB Breweries with additional opportunities to maximise higher margins from our premium brands, Heineken and Monteith's."

Lion Nathan's report said the New Zealand beer market was beginning to show signs of recovery, after a number of years of decline, caused mainly by a fall in on-premise draught beer consumption.

"This trend has been driven by concerted efforts by the industry to increase the relevance of beer, greater on-premise investment and improved retailing following the introduction of beer in supermarkets."

The companies again had their particular views of which one had the major share of what markets.

Lion Nathan said the company continued its leadership position in all market categories.

It referred to its Speight's "portfolio of brands" which grew strongly, "again demonstrating their universal appeal."

DB said its "premium portfolio" continued to perform well in an increasingly premium-focused market.

"Heineken was launched in New Zealand seven years ago and is the No 1 selling premium beer."

It seems top spots in the brewing industry depend on whether you claim a single product, a group of products or the whole lot.

DB Breweries' future seems to be based on more of the same, with streamlined brewing operations and strengthened franchised liquor retailing.

Lion Nathan is trying to build what it calls a "premium" wine company, based on 100% of the Petaluma company and 85% of Banksia Wines.

That will take time, as it will achieving satisfactory profit from its venture in China.

Both brewers are safe, if unspectacular, investments that give shareholders reasonable income and a modicum of capital appreciation.

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