In today’s Daily Alert, Global Investment Strategist Editor Benjamin Shepherd introduces a unique way to play Chile’s economic growth via its maturing wine industry.
“Improving commodity prices and growing consumer spending are creating impressive opportunities in the Chilean markets. Still, most Chilean equities are currently trading at a discount to their Brazilian peers, despite the fact that the Chilean economy is expected to grow by nearly 5% this year versus Brazil’s forecast growth of 3%.
“As a result, based on the more favorable valuations in the face of greater growth, Chile should be a great haven for investors for the rest of this year. ... An interesting way to play the consumer demand created by Chile’s mineral wealth is to look at the country’s growing wine industry. About 8,000 growers cultivate grapes on about 120,000 hectares of Chilean agricultural land, a nearly 70% increase over the past decade.
“While Chilean consumers have historically favored beer as they’ve become more affluent, many are beginning to drink more wine with per capita consumption up to about 19 liters annually. On top of that, Chilean wines, particularly reds, have gained favor with global consumers, pushing Chilean wine exports up over 1 million liters per year. In aggregate, nearly USD2 billion worth of wine was exported in 2010, nearly double that of 2008.
“Vina Concha y Toro (VCO, $41) is a leading Chilean wine producer growing 25 grape varietals across 8,800 hectares in Chile with another 1,100 hectares in Argentina and 450 in the US. On average it is capable of producing about 43,000 barrels of wine per year. The company has been a major beneficiary of growth from regional and international demand. In dollar terms, it has managed to grow its sales by 18% annually, while volume has averaged 10% annual growth over the same period.
“The company has been aggressively expanding its product offerings and recognition level over the past several years, acquiring Fetzer wines in 2011 and sponsoring high-profile events such as major golf championships in the U.S. It also invests heavily in growing and improving its productive capacity to the tune of about USD55 million per year.
“Thanks to these efforts, the company’s export volumes have grown from a value of about USD250 million in 2005 to USD577 million is 2011, the last year for which complete figures are available. That equates to 20 million 9-liter bottle cases per year. On top of that, thanks to its increasing focus on premium wines, the average export price for a case of its wine has reached USD28.80. Purchase Vina Concha y Toro under 45.”
- Benjamin Shepherd, Global Investment Strategist, February 6, 2013