Disentangling Emerging Markets

Sunday, Sep 13 2009 by

I get quite cross when I hear people talking about 'emerging markets' or even 'BRICs' as a single great lump of investment. To me, investing in Russia is completely different from investing, in, say, Brazil or China. You can't lump them together - it's apples and oranges, chalk and cheese, or... beer and beer.

Beer and beer? Or should I say cask ale and lager? Because the City made a bad investment mistake based on the idea that all cask ale was the same. And I think it's about to make the same mistake by thinking that one emerging market is just like another.

Let's run the clock back to the late 90s and look at the market for brewing and pub companies as it was then. Whitbread and Bass were the big brewers, and they were producing adequate, but not exciting, cask ale. They were also making much more money out of selling lager, and promoted their lagers unsparingly on TV. Unsurprisingly, their cask ales didn't do well.

So the City got the idea that cask ale was a declining market. Only problem with that idea; cask ale was booming! Not at Whitbread and Bass, admittedly - but regional brewers like Wolverhampton & Dudley were doing well. So were Young's, Fullers, Jennings, Hardys & Hansons - just about anybody except Whitbread and Bass! Even so, because the City thought that real ale was a rubbish investment, you could pick these companies up at a 50% discount to their net assets.

If you were a lucky investor, you were acquainted with some of the better products of regional brewers, like Ridley's Old Bob (now alas killed off by Greene King, though its Witchfinder Porter is being revived as a seasonal beer this autumn) and Woodfordes Wherry. And so maybe you didn't buy the City view, and maybe you invested in one or two brewers - but not Bass or £WTB.

Fast forward to 2007 and see what happened. The two big brewers got out of brewing completely - they'd never been a hundred percent committed to real ale, and in the end they didn't even want to brew lager. Whitbread and Bass both sold their brewing operations to Interbrew, the Belgian conglomerate, and exited the market completely.

Meanwhile Wolves & Duds had run all the way from about 375p to eleven quid on the back of a hostile -…

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Marston's PLC is engaged in running pubs and beer brewing. The Company owns a range of assets from pubs to brands. The Company's segments include Destination and Premium, which consists of food and drink sales, accommodation and gaming machine income; Taverns, which includes Food and drink sales, rent from licensed properties, accommodation and gaming machine income; Leased, which includes drink sales, rent from licensed properties and gaming machine income; Brewing, which comprises drink sales and third-party brewing, packaging and distribution, and Group Services. It operates over 1,600 pubs, inns, breweries, depots and offices. It operates over five breweries producing over 60 types of ales at its sites in Burton on Trent, Oxfordshire, Cumbria, Hampshire and the West Midlands. Its breweries supply and distribute beers to its estate, supermarkets and other pub businesses across the nation. Its brands include Hobgoblin, Pedigree, Wainwright, Banks's, Ringwood, Jennings and Brakspear. more »

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Whitbread PLC is a United Kingdom-based company, which owns and operates hotels and restaurants. The Company is organized into a single business segment, Premier Inn. Premier Inn provides services in relation to accommodation and food both in the United Kingdom and internationally. The Company's restaurant brands include Beefeater, Brewers Fayre, Table Table, Cookhouse & Pub, Bar + Block, Premier Inn, hub and Thyme. The Company operates over 800 Premier Inn hotels and over 76,000 rooms across the United Kingdom. Its subsidiaries include Whitbread Group PLC, Premier Inn Hotels Limited, Premier Inn Kier Limited, Silk Street Hotels Limited, Elm Hotel Holdings Limited, Brickwoods Limited, Duttons Brewery Limited, and Silk Street Hotels Limited. more »

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About valueinvestor


I spent fifteen years working in the City as an analyst - now, I spend my time looking after my own portfolio and working as a writer.  I reckon I've probably looked at more than a thousand annual reports in varying degrees of detail over the years and I've noticed that useful information is often in inverse proportion to the size of the report! Very much a believer in value investing. more »

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