By Andrew Starke

Fosters Group enjoyed its biggest one-day gain in two months yesterday (Jul 14) on the back of Merrill Lynch analyst David Errington’s recommendation that investors buy the stock.

Errington, a fierce critic of Foster’s former ‘multi-beverage’ strategy, said the company’s stock was now undervalued, prompting his ‘buy’ recommendation.

Fosters announced in February that it would split its Australian wine and beer businesses, creating separate beer and wine sales teams and appointing separate heads for its wine, beer, cider and spirits interests.

“Fosters has a wonderful set of assets (both operating and brand names) that have been poorly managed in past years,” Errington said. “By getting back to basics, splitting the beer business from the wine business, improving efficiencies and focusing on sales, the upside potential to earnings is material, even in the tough wine business.”

“Other than needing to revitalize a couple of brands, we think Foster’s physical assets require no capital expenditure,” he added.

Foster’s beer business is expected to generate $1 billion before interest and tax in the next year, making the brewing unit worth about $12 billion.

The analyst also found value in the group’s wine business, which should generate around $350 million cash this year.
oster’s Group shares were trading at $5.32 at 2pm today (Jul 15), up from $5 seven days ago. 

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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