City isn't popping any corks over wine
Derek paIn ponders the failure of a promising Stock Exchange duo
Wine is not flavour of the month in the stock
market. City traders may have consumed vast quantities celebrating record Christmas bonuses, but investors tempted into two overseas wine companies have had a sobering experience.
Cosentino Signature Wines, of California, and Palandri, from Western Australia, are the culprits in what has been a costly disaster. Just over a year ago Cosentino's shares were sold to investors at 125p; they are now around 24p. Palandri, floated at 28p in the summer of 2004, has surrendered its share presence altogether. The last price was a mere 3.5p.
With shares of English Wine Group and Blavod Extreme Spirits failing to cover themselves in glory it has been left to the behemoth of the industry, Diageo, to reassure the City that producing and wholesaling wines and spirits still offers investment appeal. Majestic Wine is also a star performer. But in City eyes, its shares should be lumped with retailers.
The Californian company's fall from grace is probably the most difficult to swallow. Cosentino's arrival attracted considerable attention. A variety of U S companies had already appeared in London - settling for the Stock Exchange's junior, lightly regulated share market, the Alternative Investment Market . Cosentino was the first US wine company to take AIM and there were hopes the group, producing wine in the Napa Valley and Lodi regions, would encourage other US drink businesses to join what is probably the fastest growing share market in the world.
Although Cosentino's shares failed to enjoy an euphoric ferment they did, for a time, perform reasonably well, topping 140p. Then came a profit warning. Problems had arisen with the Lodi crop of Zinfandel grapes. Because of an unexpectedly high acid content they had to be casked for much longer than usual, delaying bottling. The group's financial position deteriorated and in November it was disclosed that a cash injection was urgently required. Two directors put up a $1 million loan that expired at the end of the year. It has been extended. The group is still looking for funds and hopes to raise cash by selling non-essential assets.
At least the shares are still traded in London and shareholders can, if they wish, swallow their loss and sell out. Those still on the Palandri share register will find it more difficult to escape. For the Aussies have drawn stumps - retreating back Down Under. The company has abandoned its AIM presence and talks about the possibility of getting an Australian share quote later this year. The shares have been as high as 38p. Why is Palandri, which has claimed a not inconsiderable presence in the off-trade, quitting London?
Chief executive Darrel Jarvis has re organised the business and is keen to develop trade with China. But the man who once said he always wanted to run the company from London feels AIM has not reflected Palandri's "true market value".
Although there has been little enthusiasm for the shares the company, which had links with failed off-licence chain Unwins, has traded well during its London excursion. It even avoided the oversupply setbacks that hit so many Australian drink groups. Indeed, Jarvis has said he could not keep up with demand.
Any British investor still on board is now locked into what is almost a private company. An Australian quote may eventually provide a get-out solution for them. In the meantime, they have little chance of selling their shares at a reasonable price. Loss-making Blavod, known for its black vodka and also holding a number of wine and spirit agencies, could also lose its stock market presence. An unidentified US group has signalled takeover intentions. Unfortunately, the price is likely to be around 18p a share - well below the 60p touched in the summer of 2003. Still, with the shares at 11p, some shareholders will no doubt welcome an 18p a share offer.
English Wine Group, based at Tenterden in Kent, floated on the fringe Plus share market at 15p in 2003 - the shares are now 13.75p. But shareholders would not have expected quick riches. EWG is very much an embryonic operation. With English wine now attracting serious attention, the group's sales are increasing and there are hopes of a first-ever profit next year.
The removal through takeovers in recent years of the likes of Allied Domecq, Glenmorangie and Highland Distilleries means Diageo is the only significant wine and spirit player left on the stock market. It is capitalised at a mighty £27.5 billion and towers over the rest.
And Majestic? It enjoyed another bumper festive season and its highly-rated shares are riding high. But all its glory, the City insists on believing, should be included in its shopping receipts - not its drink bill.