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The Sydney Morning Herald

BRL says it has a bright future

Author: Edited by Mark Todd
Date: 12/09/2002
Words: 971
          Publication: Sydney Morning Herald
Section: Business
Page: 24
The knack in the wine business is to see the glass as half full, not half empty.

If BRL Hardy's Stephen Millar had his way, the market would focus on his company's long-term potential rather than the wine maker's short-term hole in cash flow.

Millar was adamant again yesterday, this time at a lunch for the press, that BRL had the situation under control and a 25 per cent jump in inventories to nearly $700 million won't force the company into any margin-diminishing discounting. Rather the thing to watch is the Pacific Wine Partners joint venture in the US with Constellation Brands.

That's just as well, given it appears PWP must now shoulder the responsibility for driving earnings growth at BRL Hardy. Europe still has a reasonable profile, but not enough on its own to keep profits rising at least 15 per cent a year.

PWP's chief executive, Jose Fernandez, said yesterday that in five years it was possible that the value of BRL's stake in the business could exceed the company's present market capitalisation. PWP has a rough target to create an enterprise in that period worth $US2 billion ($3.6 billion), based around the quick-selling Blackstone range which has the potential to become a 2 million case brand. Do the maths and you come up with $US1 billion as BRL's share of the spoils.

At home BRL Hardy is targeting a 2003 vintage at the lower end of a 260,000 to 290,000 tonne range. In that event, it will not have quite the problem with inventories it has now.

Another thing worth watching is BRL's new UK brand, Hardy's VR. Retailing at #4.99 ($14), or #3.99 on promotion, the brand is slated to go from zero to 1 million case sales in its first year.

BRL shares were up 15c to $8.58.

Cochlear catch-up

Six weeks can seem a long time in politics, business or sport. But, it isn't quite long enough when it comes to bionic ear maker Cochlear.

The company's shares dropped 3.7 per cent to $35.77 after rival Advanced Bionics won approval to resume sales in the US and Canada. It was only in late July that Advanced withdrew its device when the US Food & Drug Administration warned the implants might make the recipients susceptible to meningitis.

Cochlear was expected to have the entire North American market to itself for perhaps six months while Advanced regrouped. It was expected that Advanced would have found itself with a greatly reduced market share on its return.

Advanced, the sneaky little thing, has probably minimised the damage now that it's back in business so soon. Whereas it might have lost perhaps 30 per cent of the market to Cochlear had it spent six months of the sidelines, it may now cede only 5 to 10 per cent.

As a result, all the analysts who upgraded their earnings forecasts for Cochlear to reflect a tightened grip on the market have to take an eraser to their estimates and come up with more conservative numbers.

Rebel with a cause

More than 12 months after Harvey Norman bought its controlling stake in Rebel Sport analysts have given the sporting goods retailer the thumbs up. Since then net profit has turned around, sales have surged, and the share price more than doubled.

On Monday Rebel Sport reported $8.1 million in net profit for the 15 months to June 30, 2002. It was a $7.89 million increase on the $208,000 achieved for the 12 months to March 31, 2001. (Rebel Sport has changed its reporting date from March 31 to June 30 to bring it into line with Harvey Norman.)

Catching analysts' eyes was the 36 per cent increase in sales revenue to $296.8 million and a 5 per cent rise in like-for-like sales for the 12 months to March 31. In the three months to June 30 sales rose a further 9 per cent.

A good snow season has contributed to a 16 per cent rise in sales for the financial year to date. Sales on a like-for-like basis are up 12 per cent.

Analysts like the way Rebel is motivating employees. Individual stores are responsible for their own finances and rewarded for good performances.

``Staff are more incentivised and you get a better result," said an analyst.

Another said the decision to offload one Glue youth lifestyle chain store during the period took pressure off earnings. ``They are going to run remaining [three] Glue stores as hard as they can," the analyst said.

Tower heads down

If NZ-based life insurer Tower is looking for a takeover bidder, it seems to be going the right way about it by helping to drive its share price into the ground.

Tower is a company that investors say should be gulped up, yet never seems to be able to strike a deal. Whether it can find a bidder is another thing.

The fall in the share price, down more than $1 since March to yesterday's close of $3.13, finally attracted the attention of the NZ Stock Exchange yesterday.

Tower blamed the fall, which gathered steam this week, on low volumes, a small shareholder plan which is seeing stock sold into the market, and ``market sentiment" bearing down on all the life insurers.

It's been an eventful few months with the retirement of long-serving managing director James Boonzaier in July and restructuring which, among other changes, is likely to see the company divest its corporate trustee business, but retain its personal superannuation, wrap services and portfolio management operations.

But its size means it is more prey than predator as small wealth management groups are gulped up by big banks.

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