Cheap Grapes and Weak Peso Mean Chile Winemaker Pick of Crop

  • Concha & Toro is analysts' favorite among global wine bottlers
  • The cheapest grapes in five years mean lower costs for vintner

Vina Concha & Toro SA, the producer of Casillero del Diablo cabernet sauvignons and merlots, is winning over analysts, who say it’s set to provide some of the best returns among global beverage producers thanks to bumper crops and a weaker peso.

Concha & Toro is analysts’ top pick among alcoholic-drink makers after its shares fell 9.7 percent in 12 months to their cheapest level in three years. On a scale from 1 to 5, the average consensus rating on the Santiago-based winemaker is 4.7, higher than all its global peers, data compiled by Bloomberg show. The stock is forecast to rise 25 percent in the next year.

Concha & Toro’s global sales provide a buffer from Latin America’s economic slump, as the vast majority of its revenue comes from markets such as Europe, U.S. and Asia, according to Banco Santander SA. The peso has depreciated 16 percent in the past 12 months as the economic slowdown in China stifled demand for commodities including copper, Chile’s main export.

“Concha & Toro is well positioned in key markets, has a favorable cost structure and the exchange rate is helping, so we should see a rise in revenue this year,” Tomas Sanhueza, an analyst at Credicorp Capital said by phone from Santiago. “The stock looks attractive at this price.”

Cheaper grapes will continue to boost the 132-year-old winemaker. The dollar price of the most expensive cabernet sauvignon grapes in Chile’s Maule wine region fell to a five-year low during the peak harvest months last year, down 36 percent on average from a year earlier and 58 percent from a peak in 2012, according to an agriculture ministry report. The most expensive merlot grapes were 38 percent cheaper in dollar terms, down 59 percent from 2012. The acreage of wine grapes planted in Chile reached a record in 2014, the latest data available, led by cabernet sauvignon.

In 2014, Concha & Toro bought more than half the grapes used for its fine wines from local farmers. For lower cost wines, the proportion is more than 70 percent, according to its annual report.

Sales of its Casillero del Diablo brand surpassed 5 million cases in 2015, up from 3 million cases in 2010, according to a report published Monday in newspaper Pulso. The U.K., where Concha & Toro has a marketing partnership with soccer team Manchester United, represents 45 percent of sales. The peso weakened 9.6 percent against the pound last year.

Analysts expect the Chilean peso to end this year at around 721 per dollar, in contrast with peso forwards showing it weakening to 753 per dollar in the same period, according to data compiled by Bloomberg.

Chilean exports of labeled wine rose 4.8 percent by volume last year, led by a 53 percent expansion in wine sales to China, at the same time the value sold fell 0.4 percent in dollar terms as the cheaper currency allowed producers to lower prices.

Concha & Toro was cut from the MSCI Latin America index in November, which led to a fall in its stock price that at current levels seems "unjustified," Sanhueza said.

The company’s shares gained 1.9 percent Monday to 1,063.70 pesos, its biggest increase in more than a month.

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