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Why Brown-Forman will be one of spirits' winners in years ahead - Analysis

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Much has been written this year - not least by just-drinks - about the global trade war between the US and pretty much everybody else. As tariff barriers have gone up, the spirits company widely-considered to be in line for a drubbing has been Brown-Forman.

Brown-Forman has a strong presence in the more exciting spirits segments, according to Cowen & Cos Vivien Azer

Brown-Forman has a strong presence in the more exciting spirits segments, according to Cowen & Co's Vivien Azer

According to one analyst this week, however, the US group is well-positioned to continue to do well in the years ahead - with exports playing a part in its growth, tariffs or not.

On Wednesday, Brown-Forman hosted a day of investor presentations and, among those in the investment community that left impressed was Cowen & Co's Vivien Azer. In a subsequent client note, Azer forecast "sustained mid-single-digit sales growth over the long term" for the group, despite some ongoing issues affecting performance.

"Brown-Forman is particularly well-positioned, given its exposure to some of the most attractive segments within the distilled spirits category," Azer writes. "Notable segments include premium and super-premium whiskey Jack Daniel's and Woodford Reserve, respectively), as well as premium and super-premium Tequila (El Jimador and Herradura)."

The group is also set fair to benefit from its international operations, says Azer, specifically in the up-and-coming spirits markets around the world. "In 2018," Azer says, "emerging markets posted robust 13% underlying sales growth relative to 5% underlying sales growth for both the US and developed international markets. Through H1 of 2019 - six months to end of October - both emerging (+10%) and developed international (+5%) markets have picked up the slack for the US, resulting in total company top line growth of 5%.

"Having broad-based geographic exposure has been helpful thus far through fiscal H1 2019."

While it remains fair to say that Brown-Forman is reliant on its home market, the US is becoming less important to the group, declining last year to account for 47% of total sales - down from 65% in 2004. The move bodes well for Brown-Forman, which is positioned to 'fish where the fish are'.

"The Jack Daniel's family of brands has been increasing its exposure to emerging markets, to around 17% most recently, with plenty of whitespace to go," Azer says. "While sourcing Scotch share is not the only path to continued growth for Jack (as a larger middle class develops in emerging markets, this should drive the consumer from local brands, to more established premium brands), if Jack was to double its emerging market presence, that could add around 2.5m cases to volumes."

Provided Brown-Forman can navigate the more mature US market and the bumpy seas caused by tariff increases, the company should be one of the spirits categories' major winners in the years to come.

Why the spirits category needs to rethink its future positioning - Click here for a just-drinks comment


Sectors: Spirits

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