BRL Hardy; a tasty target

Latest in the dealer's chair is BRL Hardy which could just as easily become a buyer as it could be bought.

BRL Hardy's outstanding result for 2000 delivered a record total dividend for the eighth year in a row, record sales and record profit - $59.5m on sales of more than $600m, 22% more wine than was sold the year before.

It was obviously going to attract attention and, with a British predator already on the prowl down under, it quickly did so.

Allied Domecq has recently failed in a $770m bid for the Montana Group in New Zealand and was slow to realise what a jewel Rosemount Estates was (not that the Oatley family would've let the Poms have it anyway).

The Southcorp acquisition/merger with Rosemount in a $1.5bn deal has made Southcorp a more indigestible target as we said in issue 73, and this makes BRL Hardy stand out even more.

Deep pockets

Stephen Millar, the managing director, says he's not having any of it and – on the basis of the bumper profit and his forecast sales growth of 15% - says that any predator would need 'pretty deep pockets'. He has a point. A serious bid could cost up to $12 a share. Mind you, that's just six bucks American and getting cheaper all the time.

But Millar's looking at it the other way round. He has an eye to buying something himself – in the US naturally. Everyone is. We approve of this, as we've written time and time again. It makes more sense with every cent that comes off the Aussie dollar. Foster's got the pick of the bunch with Beringer and the positive results were dramatic and quick.

BRL Hardy needs to get into this game sharpish. We do not believe, as some analysts do, that it is running out of time, but it should get on with it. Fortunately Millar thinks so too. 'We would be very disappointed if we didn't have something locked up in the next 12 to 18 months,' he has said.

The current potential target is Kendall-Jackson. Hardy has already expressed interest. It's a pricey number – up to $US1.5bn ($1.1bn less than Foster's paid for Beringer). Millar is contemplating a formal offer and we should know soon. But here's where the currency rears its head again – US$1.5bn equates to more than A$3bn at current rates.

Kendall-Jackson looks like a good fit for BRL Hardy. It's similar in the quality of its product, for starters. It has a full-range right up a super-premium limited edition line, but most wines fall into the $10-$20 range. That's US$ of course, so the sales will be worth twice that in Aussie (that exchange rate again). It already has a good export network in 30 countries.

Weak dollar

You could compare it to Rosemount here and it makes sense for Hardy just as Rosemount did for Southcorp. We'd say go for it, if it weren't for the price. Not that it's overpriced necessarily, but with the Aussie as weak as it is, foreign goods and companies become very expensive in local terms.

Not that we see much choice. Hardy has to do this – or something very like it – and quickly - or Allied Domecq will find that its pockets are really quite deep enough, thank you, and snap it up.

Either way shareholders will be winners, even if it did turn yet another Aussie company into a foreign sideshow. With the stock up 2.1% since last issue, it's still worth ACCUMULATING.