A hot summer doesn't necessarily mean beer stocks will get a lift later
While beer production and sales do strongly fluctuate with seasons, analysts said shareholders were not likely to gain from a summer peak as increased profit and sales were largely already factored into share prices.
"People drink beer here as a soft drink," said Pawel Zach, an equity analyst for Citibank (Poland).
But he said it didn't make sense to invest directly before the season because investors expect a seasonal change in sales and the market discounts this. "There is no seasonal change in stock prices.
"If there is a great summer in terms of temperature, this might drive stock prices higher," Zach said. "But people do not know when and if there will be sunny days."
The summer season makes up over one-third of total sales for the recently merged Lech and Tychy breweries, according to Barry Smith, managing director of Kompania Piwowarska, which is now the merged company. "Although one-fourth of the year in time, the summer is one-third of the year in sales," he said.
About half of Zywiec's total sales are made during the summer, said Krzysztof Rut, corporate communications manager for Zywiec.
The summer may not be crucial for investors, but it is important for brewers if they want to make their numbers. In late spring, billboards, TV commercials and print campaigns swamp the country as brewers scour for thirsty consumers.
Czech brewer Pilsner Urquell is already preparing for summer, with plans to set up a garden promotion at restaurants and bars across the country, fully decked out with Pilsner tables, chairs, tents and umbrellas.
"The customers for Pilsner are an upmarket audience. The ways of promoting this beer are a little bit different from the regular" methods, said Konrad Mroczek, marketing manager for Pilsner Urquell.
Pilsner had a similar initiative last year but "on a much lower scale," Mroczek said. The brewer will have about triple the number of gardens this year.
Also in preparation for the summer, Lech and Tychy last month changed the look of their bottles and crates. Instead of short, stubby bottles, now they have a more elongated shape and are returnable.
The investment, which will be introduced over a two-year period, cost zl. 50 million ($12.8 million) for the crates and more than zl. 30 million ($7.7 million) for the bottles. "We're just upgrading our packaging, making it more attractive," Smith said.
Lech and Tychy also plan to gear up production over last year's summer levels, although Smith would not say by how much. In 1998, Lech and Tychy sold about 1.3 million hectoliters of beer during the summer season.
Most brewers were not willing to reveal their production estimates, saying only that these are changed on a monthly basis depending on the weather. The production time for beer is three weeks, and brewers said they can't rely on weather forecasts for more than a three-week period, Smith said.
Last year's relatively cool summer resulted in flat sales during the second half of the year for many beer producers. The poor summer contributed to Okocim's 8.4% drop in its volume of beer sold in 1998 as compared to the previous year.
For those market players betting on an exceptionally hot summer, though, and wanting to benefit from the weather, there are two main stock options, Okocim and Zywiec. Most analysts recommend Zywiec over Okocim, though. Analysts said that Okocim has suffered dismal sales in the last year and that the company needs to invest to improve its brand recognition and distribution network. On the flip side, Zywiec, in which Dutch Heineken owns 50% plus one share, has strong brand recognition in Poland and has already invested in improving its distribution network and production facilities.
Okocim, which is 44.98% owned by Carlsberg, is only using about 70% of its total capacity on an annual basis, said Bruce McKenzie, an equity analyst for ING Barings in London. The brewer "has been very disappointing over the last six months."
However, capacity is not as much of a problem for Okocim as branding, distribution and marketing, he added. "It's much more important to have a customer base. They could increase production but no one would buy it" because the beer is not branded well.
Okocim reported a zl. 2.1 million ($538,461) net loss for the first quarter of 1999 compared to a net profit of zl. 8.8 million ($2.51 million) for same period last year. Okocim suffered an operating loss of zl. 7.3 million ($1.9 million) during the first three months of 1999, compared with an operating profit of zl. 15.6 million ($4.46 million) in the same period the year before. In comparison, Zywiec rebounded in March to boast an operating margin of 24%, according to an April 23 Deutsche Bank Research report.
"According to (Okocim) the two primary reasons why results were so poor are first the fact that sales are down; and second the fact that the company is investing heavily on improving its sales and distribution network," according to the Deutsche report. "We have changed our forecasts for 1999 and 2000 to reflect the fact that the management now seems to be serious about tackling the continuing fall in market share.
"In order to reverse this process, however, we believe that the company will need to sacrifice profits and margins," the report continued. "Investment will need to be put into the distribution network and into advertising and price increases will need to be limited."
Zywiec closed at zl. 412 on Thursday, down 5.9% from the start of the year. Okocim closed at zl. 20 on Thursday, down 3.8% for the year. Zywiec has a 1999 forecast price-to-earnings ratio of 12.6, according to a March 19 Deutsche Bank Research report.
Okocim carries a downward revised 1999 forecast p/e ratio of 200, based on the April 23 Deutsche report and the share's closing price of zl. 20 last Thursday. Deutsche Bank expected the company to have earnings per share of just zl. 0.1 this year.
"People drink beer here as a soft drink," said Pawel Zach, an equity analyst for Citibank (Poland).
But he said it didn't make sense to invest directly before the season because investors expect a seasonal change in sales and the market discounts this. "There is no seasonal change in stock prices.
"If there is a great summer in terms of temperature, this might drive stock prices higher," Zach said. "But people do not know when and if there will be sunny days."
The summer season makes up over one-third of total sales for the recently merged Lech and Tychy breweries, according to Barry Smith, managing director of Kompania Piwowarska, which is now the merged company. "Although one-fourth of the year in time, the summer is one-third of the year in sales," he said.
About half of Zywiec's total sales are made during the summer, said Krzysztof Rut, corporate communications manager for Zywiec.
The summer may not be crucial for investors, but it is important for brewers if they want to make their numbers. In late spring, billboards, TV commercials and print campaigns swamp the country as brewers scour for thirsty consumers.
Czech brewer Pilsner Urquell is already preparing for summer, with plans to set up a garden promotion at restaurants and bars across the country, fully decked out with Pilsner tables, chairs, tents and umbrellas.
"The customers for Pilsner are an upmarket audience. The ways of promoting this beer are a little bit different from the regular" methods, said Konrad Mroczek, marketing manager for Pilsner Urquell.
Pilsner had a similar initiative last year but "on a much lower scale," Mroczek said. The brewer will have about triple the number of gardens this year.
Also in preparation for the summer, Lech and Tychy last month changed the look of their bottles and crates. Instead of short, stubby bottles, now they have a more elongated shape and are returnable.
The investment, which will be introduced over a two-year period, cost zl. 50 million ($12.8 million) for the crates and more than zl. 30 million ($7.7 million) for the bottles. "We're just upgrading our packaging, making it more attractive," Smith said.
Lech and Tychy also plan to gear up production over last year's summer levels, although Smith would not say by how much. In 1998, Lech and Tychy sold about 1.3 million hectoliters of beer during the summer season.
Most brewers were not willing to reveal their production estimates, saying only that these are changed on a monthly basis depending on the weather. The production time for beer is three weeks, and brewers said they can't rely on weather forecasts for more than a three-week period, Smith said.
Last year's relatively cool summer resulted in flat sales during the second half of the year for many beer producers. The poor summer contributed to Okocim's 8.4% drop in its volume of beer sold in 1998 as compared to the previous year.
For those market players betting on an exceptionally hot summer, though, and wanting to benefit from the weather, there are two main stock options, Okocim and Zywiec. Most analysts recommend Zywiec over Okocim, though. Analysts said that Okocim has suffered dismal sales in the last year and that the company needs to invest to improve its brand recognition and distribution network. On the flip side, Zywiec, in which Dutch Heineken owns 50% plus one share, has strong brand recognition in Poland and has already invested in improving its distribution network and production facilities.
Okocim, which is 44.98% owned by Carlsberg, is only using about 70% of its total capacity on an annual basis, said Bruce McKenzie, an equity analyst for ING Barings in London. The brewer "has been very disappointing over the last six months."
However, capacity is not as much of a problem for Okocim as branding, distribution and marketing, he added. "It's much more important to have a customer base. They could increase production but no one would buy it" because the beer is not branded well.
Okocim reported a zl. 2.1 million ($538,461) net loss for the first quarter of 1999 compared to a net profit of zl. 8.8 million ($2.51 million) for same period last year. Okocim suffered an operating loss of zl. 7.3 million ($1.9 million) during the first three months of 1999, compared with an operating profit of zl. 15.6 million ($4.46 million) in the same period the year before. In comparison, Zywiec rebounded in March to boast an operating margin of 24%, according to an April 23 Deutsche Bank Research report.
"According to (Okocim) the two primary reasons why results were so poor are first the fact that sales are down; and second the fact that the company is investing heavily on improving its sales and distribution network," according to the Deutsche report. "We have changed our forecasts for 1999 and 2000 to reflect the fact that the management now seems to be serious about tackling the continuing fall in market share.
"In order to reverse this process, however, we believe that the company will need to sacrifice profits and margins," the report continued. "Investment will need to be put into the distribution network and into advertising and price increases will need to be limited."
Zywiec closed at zl. 412 on Thursday, down 5.9% from the start of the year. Okocim closed at zl. 20 on Thursday, down 3.8% for the year. Zywiec has a 1999 forecast price-to-earnings ratio of 12.6, according to a March 19 Deutsche Bank Research report.
Okocim carries a downward revised 1999 forecast p/e ratio of 200, based on the April 23 Deutsche report and the share's closing price of zl. 20 last Thursday. Deutsche Bank expected the company to have earnings per share of just zl. 0.1 this year.
