Huntleys' Stock of the Week

Recommendations: Accumulate

FGL's current stock prices

Beer solid, Wine still much to do

Investment Rating:

FGL's main appeal is its solid domestic beer cash flow plus the turnaround benefits from the wine restructure and ambitious Southcorp acquisition. FGL is making gradual progress in its major group restructure. Lifting wine margins is the challenge. Competitive advantages include the well-defended local beer duopoly plus the more contestable global wine operations. FGL is suitable for defensive portfolios, helped by modest buy-backs. Corporate appeal continues. The experienced new CEO Ian Johnston has the challenge to refocus and reposition FGL.

The Result:

($m) Year to June 30	FY08	FY09	% Change
Trading Revenue	4,408.6	4,491.1	1.9
EBITDA	1,314.0	1,323.2	0.7
Pre-Tax Profit	999.7	996.5	-0.3
NPAT Adjusted	717.6	727.6	1.4
Net Op. Cash Flow	669.9	884.9	32.1
EBITDA Margin	29.8	29.5	-0.3
EPS Adjusted	37.0	37.8	2.1
DPS	26.3	27.3	3.8

Result Description:

• FGL's FY09 result was again mixed and rather ordinary. Wine suffered from weak global demand. Australian Beer remains robust. This will allow FGL to continue its lengthy Wine restructure. There is upside if the new unproven executive team can deliver.

Impact:

• Key Beer risk is whether drinkers will continue to trade up into premium categories. Major rival Lion Nathan will clearly try to take market share.

• FGL will not be able to offload its Wine assets, either entirely or separately, at least above book until demand revives massively or it cuts costs further. Its best option will be to continue to improve itself.

• Our FY10 EPS forecast falls about 7%, mainly due to the expected FX loss. Sizeable free cash flow will stay around $800m, continuing to fund a high dividend payout ratio.

The stock of the week is provided by Aspect Huntley, a market leader in sharemarket investment newsletters. For more detailed stock of the week information and expert recommendations, simply click here for a four week FREE trial to Huntleys newsletters.

@ Copyright Huntleys' Investment Information Pty. Limited (HII), a wholly owned subsidiary of Aspect Huntley Pty Limited), 2004. All rights reserved. Australian Financial Services Licence no. 240892. No material may be reproduced, except as allowed by the Copyright Act, without the prior written approval of HII. Some of the material provided by HII is copyright and is published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO"). Consensus forecast data is copyright Thomson Financial DISCLAIMER: While the above-mentioned advice and information are based on information, which HII consider reliable, its accuracy and completeness cannot be guaranteed. This report is made without consideration of any specific clients investment objectives, financial situation or particular needs. Those acting upon such information do so entirely at their own risk. For a copy of HII's Financial Services Guide please go to http://www.aspecthuntley.com.au/FSG or phone HII on (02) 9256 8000 to request a copy. DISCLOSURE: The directors and associated persons or entities of HII may have an interest in the securities discussed in this report.