Montana drinks to bullish prospects

By DITA DE BONI liquor writer

Montana Wines is bullish on its prospects, forecasting that pre-tax earnings will rise almost 30 per cent a year on average for the next five years.

If that forecast becomes reality, Montana's earnings will be almost four times the present level in five years.

The winemaker, now controlled by Lion Nathan, yesterday reported another solid half-year result. Profits for the six months to December were up 10.8 per cent to $19.5 million, compared to $17.6 million in the same period last year. Revenues were up almost 40 per cent to $173.8 million.

Yesterday's result included three months' takings from Corbans Wines, New Zealand's second-biggest winemaker, which Montana bought late last year.

The result was boosted by increased earnings domestically - despite flat sales - and a low-valued New Zealand dollar, which the company said markedly lifted the value of export sales to Europe.

Montana has a 49 per cent share of all wine exports.

It has vowed to buy more land to add to the 2024ha of vineyards it owns, hoping to increase production to meet export demand.

The company will pay an interim dividend of 5c a share, compared to 3.5c a year ago.

Group capital expenditure in the six months totalled $22.9 million, excluding the purchase of Corbans, which cost almost $150 million and was settled in November.

The deal was financed through the issue of capital notes to the value of $125 million. The sale of Montana's last non-wine asset, sharebroking firm Frater Williams & Co, added $1.9 million to company coffers during the period.

Analysts spoken to yesterday said the results were pleasing but not surprising.

Most said the benefits from the merger of New Zealand's two largest wine companies had yet to be fully realised.

Montana executive chairman Peter Masfen agreed, saying "synergistic benefits did not start to accrue during the period under review."

Benefits to date included more grape-growing land, economies of scale in domestic and international marketing opportunities and strengthened marketing clout - especially for Corbans wines into Montana's strongest export market, Britain.

Montana's share price closed up 6c at $4.01 yesterday, inching slowly towardS the $4.65 Lion paid for 22 per cent more of the company last week.

One broker said Lion had paid "a premium, but nothing monstrous" for the extra slice of the company.

The average price Lion paid for its 51 per cent stake - around $3.39 - is close to the $3.42 average price Montana shares have traded at over the past year.

Allied Domecq, the world's second-largest wine and spirits company, bid for 100 per cent of Montana at $4.40, which valued the company at $944 million. Lion won the company, paying a price that values Montana around $730 million, on the basis of Lion's $3.39 average cost.

Based on yesterday's closing price for Montana shares, Lion has already made a paper profit of $69 million from buying a controlling stake.