Sydney view: Darling wine industry takes a rare stumble

By GILES PARKINSON

This week, a small winery called Cranswick Premium Wines suffered a slump in its share price.

The European market had been hard to crack, and it had suffered a 59 per cent fall in profits.

The company was sure it was only a blip. But during the next two days, Cranswick lost a third of its value, plummeting to $A1.60 by the close on Tuesday from $2.46 on Monday morning.

It was not an unusual reaction from a market which has repeatedly demonstrated its impatience with underperformers, but it was a rare blot in the copybook of the Australian wine industry, which has become the darling of the sharemarket in the past 12 months.

Australia now boasts three of the biggest premium wine producers in the world, and the market is convinced they are being pursued by the biggest beverage companies in the world. They probably are, but because they are delivering extraordinary returns to shareholders.

BRL was even bold enough this week to reveal its interest in pursuing the purchase of Californian wine producer Kendall-Jackson.

BRL Hardy is only capitalised at around $1.4 billion, but a purchase the size of Kendall-Jackson would cost as much as $2 billion.

Even the prospect of significant capital raising has not been enough to dampen the company's share price, which continues to trade around $9 a share - a 14-fold return on its nine-year listing on the ASX.

Takeovers are fast becoming the norm in this industry, just as they have in New Zealand. The world's makers of beers and spirits have realised the growth area is in premium wines.

Foster's is riding high on the success of its $2.6 billion purchase of another Californian winery, Beringer, and Southcorp's shares shot into orbit a week ago with news that it would pay $1.5 billion for the privately owned Hunter Valley winemaker Rosemount Estates. (The Oatley family that sold Rosemount now have three seats on the Southcorp board, a 13 per cent stake in the company and $881 million.)

The question is how far can the prices run? Already, all three of these companies are trading at price/earnings ratios pitched in the high teens and low 20s.

Their cause was boosted by Lion Nathan's bid for Montana, but the effect is illusory because Lion only bought 25 per cent of the group at that price.

BRL boss Stephen Millar believes the company's earnings momentum is enough to warrant the current share price, notwithstanding all the talk about takeovers. BRL has delivered a compound annual shareholder return of 32 per cent in the past 12 months, which compares with 12.3 per cent for Foster's and 10.7 per cent on Southcorp.

It has not been a very good week for floats of any shape or size. The biggest blow to the sector came this week when Austereo, the biggest IPO to hit the Australian Stock Exchange since last June, debuted at a discount after already scaling back its expectations by nearly 25 per cent.

Some investment bankers cited the greed factor in the botched pricing. Austereo is the country's biggest and most successful radio operator, but it faces intense competition as the UK's Daily Mail Group establishes a rival network.

But the Austereo experience does not bode well for the other major IPOs in the pipeline. The talk is that the sale of CSR's sugar division, either through a float or a trade sale, may be put on the backburner for another year, while the biggest equity raising planned for the year - the $4 billion sale of Sydney Airport - looks likely to get tangled up in the politicking for the upcoming federal election.