Nick Train: Beverage companies set for 'sustained recovery'
Nick Train of Lindsell Train
The four beverage companies held in Nick Train's Lindsell Train investment trust portfolio are set for "a sustained recovery", according to the manager, who believes the share price uptick they have experienced over the last month is set to continue.
According to Train's latest portfolio update published today (20 May), Heineken saw the most substantial share price gain at 13%, followed by Diageo at 9%, Laurent Perrier at 8% and AG Barr at 3%.
"The pandemic has been a particularly frustrating disruption to Heineken's operations," the manager explained, with the company accounting for 2.6% of the trust's portfolio - its tenth-highest allocation.
Train is optimistic about the company thanks to "better than expected Q1 results". In particular, he was encouraged that the "Heineken brand itself had grown volumes by 12%".
"Meanwhile, the brands the company characterises as ‘premium', which account for [approximately] 40% of group revenues, were up by low-teen percentage rates," he added.
The re-opening of pubs in the UK has caused some issues for the company, however, as the upsurge of demand has caused "supply problems." Two of Heineken's premium bands, Moretti and Amstel, are also suffering from the issue.
Train believes the supply problems noted by the company "has implications for many businesses - not least for consumption of Laurent Perrier's premium champagnes."
Meanwhile, the world of spirits had been "better able to weather the fallout [of the pandemic] than a brewer," Train explained. Diageo, which predominantly produces spirits, "has been able to transition on-trade demand to at home consumption," he highlighted.
However, Train added: "There should be a big recovery in Diageo's revenues too, high margin ones at that, into 2022. This is on top of secular trends toward the consumption of premium spirits worldwide."
Currently, the trust has 5.5% allocated to Diageo, making it the portfolio's sixth highest holding.
While AG Barr saw the most limited share price growth, Train is still optimistic following a recent meeting with the company's management.
"The company indicated that post-Covid it hoped to return to underlying sales growth of high single digits," he said.
"With £50m of net cash on its balance sheet, or 9% of its current market capitalisation, Barr has good optionality to accelerate growth even more, preferably by successfully marketing its new products in energy drinks and cocktail mixers."
The Lindsell Train Investment Trust is trading at a 14.4% discount to net asset value, according to the factsheet.
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