Analyst Ian Shackleton singled out PureCircle as a stock to watch in 2017

Analyst Ian Shackleton singled out PureCircle as a stock to watch in 2017

Rounding off his first full year with us, just-drinks resident analyst Ian Shackleton prepares for Christmas with a look at recent developments at Bacardi, a review of results from the third quarter and a look at how his stock tips have done this year. He also has a future tip for the top of his own.

Is Bacardi about to become more of a competitive threat?

As a privately-owned company, Bacardi was never part of my research coverage. That said, I've followed the company from afar for many years. Indeed, I remember visiting the company in Bermuda nearly 20 years ago when Chip Reid was the CEO and there were moves afoot to go for a public listing (for those of you without long memories, this didn't happen and Chip was soon the ex-CEO of the business), Since then, the company has gone through a constant churn of top management, with a succession of CEOs from different backgrounds, including Colgate, P&G and sports management company IMG. The company doesn't publish its financial performance, but there's been some commentary that, during a lot of this period, there has been only limited growth in revenue and profits.

Generally, I take the view that family ownership in spirits companies is a good thing; look at Gruppo Campari, or Pernod Ricard or Remy Cointreau. Family ownership should allow longer-term investment in brand- and business-building, as well as providing some protection against the pressures from quarterly reporting to always go for the short-term profit. Indeed, on its website, Bacardi proudly describes itself as "the largest privately-held spirits company in the world".

So, why does performance appear to have been below many of its peers? I understand that the family ownership, now in its seventh generation, is very wide, with well over 400 individual shareholders making it difficult to get a consistent consensus. I've also heard that many of these family shareholders prefer higher dividend payments to investment in the business.

Certainly, it was always a fairly safe bet that Bacardi would not be a huge competitive threat to market share. And yet, there are some great brands here - okay, the Bacardi rum brand might need a refresh, but it does own the white rum category. And, while Grey Goose has suffered from the slowdown in the vodka category, Bombay Sapphire ought to be booming in the revitalised gin category. Then, there is good representation in other growth categories like Tequila, with Cazadores.

There may also be some signs of a more consistent management style. Newly-appointed CEO Mahesh Madhavan is a 20-year company veteran and there are several other long-timers on the executive board: Former William Grant & Sons CEO Stella David, who was in charge of marketing some 15 years ago, is back as a non-executive director. Then, there is also good news in that the rapprochement between the US and Cuba, which could have introduced Pernod's Havana Club iteration to the US market, certainly seems to have cooled under the new administration.

Now, I do not think that we are at the point where Diageo and Period see a huge threat from a Bacardi renaissance, but possibly the serial underperformance may be coming to an end. In any case, Diageo should surely be on top of all this, as its new chairman, Javier Ferran, spent a couple of years as Bacardi's CEO in the early-2000's.

Third-quarter reporting - not as punchy as Q2: Spirits remain high, but IPO softness is not positive

You may recall that my review in August of Q2 beverages reporting noted several surprises on the upside. By contrast, there has not been much in third-quarter results to-date that would have got the investor pulse racing.

As an overall comment, spirits companies continued to deliver well against expectations, and it is not coincidental that the share prices of the large quoted spirit companies - Diageo, Pernod, Brown-Forman, Campari, Remy - are all towards all-time highs. Beer, meanwhile, appeared a bit more mixed, with Anheuser-Busch Inbev and Molson Coors' share prices now well off the highs. And, soft drinks has also seen more volatility, although much of this might be attributed to whether the sun has been shining (it appeared to have done its bit for Coca-Cola HBC, less so for the other European bottler, Coca-Cola European Partners).

There are a couple of themes that stand out for me in recent reporting. Firstly, emerging markets generally are performing well, particularly in Asia, which has helped some of the spirit names. Secondly, US beer continues to be in the doldrums, which weighs heavily on A-B InBev and Molson, as the consumer reaction continues against an industry that had become too focused on a bland, homogenous product.

Old-timers like myself will find it easy to draw an analogy with the UK consumer revolt against standardised keg bitter in the 1970s and 1980s, which led to the demise of once-big brands like Watneys Red Barrel and Double Diamond - it does make you wonder whither Bud Light and Miller Lite?

Most of the debate that I pick up from investors, however, focuses on whether markets as a whole are due a correction. I have pointed out previously that I was always told that markets do not like uncertainty, and we're not short of that, with Brexit, Trump, etc. On the other hand, "where else do you put your money?" is a constant refrain.

Historically, the IPO market has been seen as a good barometer of investor opinion. The evidence here is a bit mixed, with some planned IPOs being pulled; last week, the UK market saw announcements that the IPOs of telecoms company Arqiva and food company Bakkavor had been cancelled (although, that changed by the end of the week when the Bakkavor IPO went ahead).

What are we to make of this? It's probably a sign that investors have more confidence in more steady-state, consumer staples companies than in more volatile telecoms. And, consider that Bakkavor reportedly had to cut its pricing by some 16%, compared with the mid-point of its indicated range, in order to get the float away.

That can make you a bit nervous about current market levels.

Justifying my existence - How have my drinks tips done?

You'll recall that I've mentioned a couple of times this year the dramatic changes in financial markets that are due to take effect in January, when the MiFID ll regulation impacts the way broking analysts earn their keep.

With potential for half the 'analysts on the street' to literally find themselves out on the street, there is a lot of "justifying my existence" going on in the big banks currently. Now, that no longer impacts me directly, of course, but my editor is reading this, so here goes.

You may remember that I started the year with stevia producer PureCircle as my stock of the year, closely followed by mixers group Fever-Tree. For a lot of this year, I have been kicking myself as Fever-Tree was out in the lead, but now I am glad to report that PureCircle - 94% up on last week's closing price compared to the start of the year - is now ahead of Fever-Tree, which is 'only' up 84%.

I just wish the performance of the Shackleton portfolio as a whole was anything like these numbers.

As with strong company reporting, of course, I have set a high bar for 2018. Need to get my thinking cap on for January.

Finally, and on a slightly lighter note, I can also confirm that I continue to hone my grass-roots drinks research skills. On holiday last week in Antigua I won the cocktail-making competition in our hotel with a concoction I called "Antiguan Sunrise". Naturally, this was rum-based, and I won enough dark rum to keep me making cocktails for quite a few weeks.

I admit that my cocktail was not a revolutionary new concept, but as you know, line extensions have always played a key role in spirits innovation. A quick Google search seems to confirm that I am the first with the name, so to all those large multi-nationals out there, do let me know if you want to invest.