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Liquid assets offer grape buys

GUT wrenching volatility in the market, endless prattle from economists talking us into recession, up half the night filling in BAS forms. Its enough to turn a man to drink. In fact that might not be a bad idea.

Shares in wine makers and breweries combine a heady mix of defence and growth, the biggest of them offer deep liquid cash flows, and the current global wave of consolidation will deliver takeovers this year.

Hot dry weather has set the scene for a bumper harvest. Commodities forecaster ABARE says the industry will pick 1.3 million tones of grapes, up 14 per cent on last year.

The gloomsters say there is already world-wide over production and we will be drowning in a wine glut shortly. But much of this stuff is purely plonk - bulk wine that no self-respecting Business News reader would give to their budgerigar.

The premium brands are quite another thing. Domestic tipplers seem to have gone on the wagon lately. But overseas demand has been corking. Australia is the fastest growing wine exporter in the world and it will ship approaching $1.5 billion worth to the US and Europe this year.

There are a crate of wine companies listed on the ASX. Southcorp derives about 44 per cent of its profits from top drops like Penfolds Grange Hermitage and Lindemans Chardonnay, and it boasts the world’s largest vineyards covering 6,000 hectares. Southcorp shares are trading at $5.05 down from a high of $5.80.

Fosters fans have been rolling out the barrel in recent months as the share price has surfed through all kinds of markets to briefly touch a peak of $4.90. In October the company paid US$1.6 billion for the Napa Valley Beringer group. Timid local institutions whimpered about the risk, and sold the shares down. Bad move. Fosters wants to wade deeper into the US wine market where the US$8 to $12 a bottle market has been growing at double digit rates.

The company plans to move from an 80-20 beer/wine profits split to 60-40 in five years. The drinking world is watching, and the UK Diageo grog giant was recently rumoured to be interested in bidding for the Australian icon.

Investors need not chase the share prices of wine companies. As the domestic economy chills out, they are trickling back into buying range. Pick of the crop might be Simeon Wines which accounts for about 15 per cent of national production, and is off a peak of $3.45 to trade at $2.60. BRL Hardy is high on most brokers’ wine lists and would be good value around $8. Then there are Cranswick, Petaluma, P. Lehman, Piper Bros and Evans & Tate. It would be a surprise if all these were still independent by the end of the year. Place your orders.

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