Analysis - Stock Spirits: Poland's number one
Stock Spirits hosted a visit to its production facility in Poland earlier this week, with just-drinks joining a group of analysts on an early-morning flight to the south-eastern city of Lublin.
Stock came into being in 2008 through the integration of Eckes & Stock and Polmos Lublin by US-based investment group Oaktree Capital Management. Operating in Central and Eastern Europe, the company boasts market leadership in the Czech and Polish spirits markets. It also has operations in Slovakia, Italy, Croatia and Bosnia & Herzegovina.
In Poland, Stock leads the way in vodka, accounting for 39% market share. While the category's volumes are declining, in value terms, vodka is rising slightly in the country – a lot of this is down to Stock's approach.
The company owns brands such as Zoladkowa Gorzka that trades on its provenance and history. In premiumising the vodka through brand extensions, Stock has tapped into a populace with (relatively) higher income and a strong national identity. By backing this tack with an aggressive NPD programme – Stock's Lubelska vodka liqueur brand has a wide range of flavoured expressions, with orange launching last month – the company has been performing well: Stock raised EBITDA margins from 20% in 2010 to 25% in 2013.
Much was made on the trip of the sorry state Polmos Lublin was in when Oaktree arrived: Too many employees, disorganised work practices and on-site theft were all mentioned in presentations. The reduction of staff from 500 to 300 in six years, coupled with a quintupling of production volumes serve clearly to show that Stock has experienced quite a turnaround.
All in the garden is rosy, then. The analysts I spoke to all seemed to agree: “We continue to argue that Stock Spirits trades on an attractive valuation,” one says in a subsequent client note today.
There are two possible flies in the ointment, however. One is the difficulties Stock has faced – and, I feel, will continue to face – on expanding affordibly into other markets. The cheapest way to grow geographically is through exports. But, with such local provenance, the firm will struggle to secure footholds in new markets through its existing brands.
CEO Chris Heath conceded as much when I spoke to him in May: “It (international) is the one part of the business that has been mixed,” he told me. “We saw some good growth in some parts of the world but, with the economic situation, there's been a reluctance for distributors to take on a lot of new brands, especially if you're not investing large amounts of money behind them. So, we've taken a cautious approach.”
The other option, then, is to make acquisitions; while this has worked well for Stock in the past, you can expect prospective targets to factor the company's current successes into their asset valuations.
The other fly is the long-mooted theory that Stock is ripe for acquisition itself. “ While the organic case for Stock spirit is strong,” one of the analysts writes, “speculation about another round of the increased pace of consolidation in distilled spirits should be noted.”
All is rosy for now, but hurdles ahead exist.
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