Drinking with Jack

Brown Forman (BFB) is a pure play investment in American whisky. Their main product Jack Daniels needs no introduction. It is one of the best known spirit brands in the world selling 11.5 million cases last year. They have a portfolio of 30 other spirit, wine and cocktail brands such as Finlandia, Southern Comfort and Canadian Mist. Their products resonate with Australians. Australia is the single largest market outside of the US being 12% of overall sales with ready to drink Jack Daniels a big driver.

Whisky keeps on performing
BFB is a consistent long time performer. Not many companies have been around for 35 years let alone growing at 10% over that period. Some of the world's oldest companies are in the alcohol or pub business, no matter what technological change occurs in the future people will still be drinking whisky. As you can see below Whisky is the fastest growing spirits category.

Source: Brown Forman investor day

Source: Brown Forman investor day

Innovation on fire
Modern updates of their core Jack Daniels has introduced more consumers to the brand. Jack Daniels Honey has attracted more females and millennials. Honey is now a top 20 brand with 1 million cases sold above $25 per bottle all within four years. BFB have also released Jack Daniels Tennessee Fire a cinnamon liqueur. It's slogan puts hair on your chest then burns it right off! So far it is tracking ahead of Honey's rollout growing 1.3x Honey's growth rate.

Like most established brands BFB is an emerging market story. Their Jack Daniels brand has a 28 year compound annual growth rate of 20% overseas compared to 4% in developed markets. Another way to look at is Jack Daniels has 13.7% share of value in the US versus 6% in the rest of the world.

A friend of Jack
The Jack Daniel's brand is a rare asset, most growing spirit companies are not listed. Their competitor Jim Beam was taken over by the Japanese company Suntory who paid $16 billion including debt approximately 20 times trailing EBITDA BFB trades at 18x.

Source: Brown Forman investor day

You can see above that everyone is a friend of Jacks. Their combination of a great heritage brand like Jack Daniels and its innovation around honey and cinnamon will likely mean another great 35 years for the brand.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in Brown Forman (BF/B) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.