by Sara Nunnally, Senior Research Director, BreakAway Investor
Strong investment incentives for foreign companies in Poland make this new European Union country increasingly attractive to individual investors. The optimistic perspectives for accelerated economic growth, low labor costs, and growing exports contribute to an even brighter future…
Poland rests at the very heart of continental Europe, and is part of the trans European road network. Historically, Poland has been an area of conflict because of flat terrain and the lack of natural barriers on the North European Plain.
But you wouldn’t know it by the route I took…
In fact, the whole southern tip of Poland is crinkled with mountains. The High Tatras… the haunting Carpathians. It makes for a stunning drive, if you have six hours to kill.
The trip was long and draining from Teplice mad Metuji to Krakow. I was stuffed on a bus winding through picturesque little towns for six hours.
Yes, the vegetable gardens outside of every home are cute and quaint, but six hours was more than enough. I have to say, though, the farmland on this trip was really beautiful. We’re talking about corn, sprouts, and even sunflowers growing in neat patches that stretched far and wide.
The green was even more rewarding in the drizzling, misty grey sky.
But more than farming, the Poles are good at building.
The economy is looking so good right now that Polish ex-pats are moving back home. There was the story about one Polish gentleman who immigrated to the UK to work in graphic design. He recently moved back home because the cost of living is cheaper, and wages are growing. He got a job in three days. How’s that for a job search?
Consistent GDP Growth Lends to a Strong Economy
In the first quarter of 2008, the country’s GDP grew at a rate of 6.1%. The second quarter also saw great growth, with a rate of 5.8%. Now, the third quarter is expected to clock in slightly lower, and the year as a whole will see an average growth rate of 5.5%, but let me explain this “slowdown,” as many of you have questions, I’m sure.
Poland’s GDP growth is one of the strongest among new European Union (EU) members, and it’s more than double that of the Western EU average of about 2.2% (in the first quarter… the second quarter is much lower).
The fact that Poland is still pulling in numbers more than double that of its Western neighbors says a lot about the strength of the economy.
So let’s look at some other numbers…
Over the past two years, Poland’s unemployment rate has dropped from 13.8% to 9.6%. Wages were up 7.7% in 2007, and corporate wages grew an astounding 12.6% in the first quarter of 2008.
The Polish zloty has been increasing in value versus other major currencies, too. In the past five years, the zloty has climbed 51.5% against the dollar and 29.2% against the euro…
And that’s with the major correction we saw back in July through October 2008.
Inflation, therefore, is headed in the right direction, after peaking out at 5% in August due to astronomically high food and fuel prices.
These factors are leading to the best of both worlds: increased domestic demand; and increased exports. Both of which are absolutely necessary to attract foreign investment dollars.
Number One Factor for Market Rebound: Foreign Direct Investment
Poland’s GDP growth of 5.8% is pretty astonishing when you consider that between September 12 and September 29, the Dow dropped 9.25%. And that’s being nice and not talking about the subsequent drops that took the Dow all the way down below 8,000 for the first time since March 2003.
And most markets fell right along with the Dow… emerging markets and developed economies alike.
But some emerging markets, and Poland in particular, have an ace up the sleeve: Foreign Direct Investment.
In fact, Poland received more than $17.5 billion in FDI in 2007 alone.
This is the single most important factor in the coming rebound of global markets, and Poland is seeing continued investment from foreign companies and foreign investors. So much so, that you don’t want to miss out.
And that’s just what investors like you are looking for. So let’s take a look at one of the biggest sectors in Poland…
Vodka Belts Lends to Accelerated Growth in Service Sectors
The Food and Drink industry contributes $39.6 billion, or 19.2% to Poland’s GDP. One of the reasons this sector does so well is because of vodka.
Some of you may not know that Poland is right on the edge of what’s called the “Vodka Belt,” a stretch of land that encompasses Lithuania, Latvia, Estonia, Poland, Belarus, Russia, and Ukraine, along with some Nordic states. These guys produce 70% of the vodka consumed in the European Union!
Vodka is the most popular spirit in the EU and, also, in the U.S. Actually, the U.S. has joined Russia and Ukraine as the top vodka markets around the world. Its popularity has even led to the creation of U.S. vodkas produced from grapes. Of course, the Vodka Belt can’t have that… It’s actually launching a campaign to have only spirits made from potatoes, grain or sugar beet molasses labeled as vodka.
Kind of like “real” champagne.
Regardless of how the name game falls out, vodka will remain the number one spirit in the world; and I’ve found a Polish distributor that’s cornered the market.
That company is Central European Distribution Corp. (CEDC: NASDAQ), and it’s been snapping up acquisitions all over Eastern Europe and Russia.
Central European Distribution Corp. is the leading vodka producer in Poland, and one of the largest in the world. It’s also the largest distributor of alcohol in Poland, with some exclusive beer deals.
Let me give you an idea of just how big CEDC’s portfolio of brands is…
Diageo (DEO: NYSE) is the world’s leading premium drinks business. It has a whopping 74 different brands in its portfolio.
Pernod Ricard (RI: Paris), the French firm that recently bought Absolut (the world’s third best selling vodka), has a respectable 15 different brands. CEDC has 900.
Yep, you heard me right: 900 different brands in its portfolio.
How can CEDC say that? Well, it doesn’t produce all 900 brands. Rather, a unique strategy of acquiring distributors, importer, and producers has made CEDC Europe’s leader in the alcoholic beverages market.
And here’s the news that created such a stir recently: On March 13, 2008, CEDC announced it had bought 85% of Parliament, Russia’s top premium vodka brand.
As a result of this acquisition, CEDC’s CEO, William V. Carey, raised its performance targets for 2008 from $1.3 billion to $1.4 billion in net sales, which means the company’s fully diluted earnings per share growth was up to between $2.25 to $2.40 a share (from $2.08 to $2.18).
CEDC has also raised its guidance for 2009…
Let’s put the cherry on top.
Russia is one of the fastest-growing spirits markets in the world. So fast that Lion Capital (LCHL.OB), a private equity firm in the U.K., is acquiring Russian Alcohol, the parent company of Green Mark and Zhuravli. Russian Alcohol is the world’s third-largest producer of vodka, after Smirnoff and Absolut. The deal is worth $600 million. But Lion Capital isn’t going it alone.
One of its partners is Central European Distribution Corp. CEDC’s stake will be 40%, or about $156.5 million. And CEDC will be able to up its stake beginning in 2010.
No wonder the company’s raising guidance for the next two years.
And yet, even after CEDC raised its guidance, it was absolutely slammed by the global market crisis. This is an amazing opportunity to get in this company. We’re seeing stock prices we haven’t seen for a year and a half… since before CEDC’s astronomical rise – and that’s a perfect time to buy in on this opportunity.
Buy Central European Distribution Corp. (CEDC: NASDAQ) at market.
Strong investment incentives for foreign companies in Poland make this new European Union country increasingly attractive to individual investors. The optimistic perspectives for accelerated economic growth, low labor costs, and growing exports contribute to an even brighter future…
Poland rests at the very heart of continental Europe, and is part of the trans European road network. Historically, Poland has been an area of conflict because of flat terrain and the lack of natural barriers on the North European Plain.
But you wouldn’t know it by the route I took…
In fact, the whole southern tip of Poland is crinkled with mountains. The High Tatras… the haunting Carpathians. It makes for a stunning drive, if you have six hours to kill.
The trip was long and draining from Teplice mad Metuji to Krakow. I was stuffed on a bus winding through picturesque little towns for six hours.
Yes, the vegetable gardens outside of every home are cute and quaint, but six hours was more than enough. I have to say, though, the farmland on this trip was really beautiful. We’re talking about corn, sprouts, and even sunflowers growing in neat patches that stretched far and wide.
The green was even more rewarding in the drizzling, misty grey sky.
But more than farming, the Poles are good at building.
- Fourth largest recipient of foreign direct investment after China, India, and Brazil, and FDI could climb by 40% in 2009.
- Budget deficit down to 2% of GDP in 2007; general government deficit down to 2% of GDP (from 3.8% in 2006).
- Industrial growth rate of 8.9% last year.
The economy is looking so good right now that Polish ex-pats are moving back home. There was the story about one Polish gentleman who immigrated to the UK to work in graphic design. He recently moved back home because the cost of living is cheaper, and wages are growing. He got a job in three days. How’s that for a job search?
Consistent GDP Growth Lends to a Strong Economy
In the first quarter of 2008, the country’s GDP grew at a rate of 6.1%. The second quarter also saw great growth, with a rate of 5.8%. Now, the third quarter is expected to clock in slightly lower, and the year as a whole will see an average growth rate of 5.5%, but let me explain this “slowdown,” as many of you have questions, I’m sure.
Poland’s GDP growth is one of the strongest among new European Union (EU) members, and it’s more than double that of the Western EU average of about 2.2% (in the first quarter… the second quarter is much lower).
The fact that Poland is still pulling in numbers more than double that of its Western neighbors says a lot about the strength of the economy.
So let’s look at some other numbers…
Over the past two years, Poland’s unemployment rate has dropped from 13.8% to 9.6%. Wages were up 7.7% in 2007, and corporate wages grew an astounding 12.6% in the first quarter of 2008.
The Polish zloty has been increasing in value versus other major currencies, too. In the past five years, the zloty has climbed 51.5% against the dollar and 29.2% against the euro…
And that’s with the major correction we saw back in July through October 2008.
Inflation, therefore, is headed in the right direction, after peaking out at 5% in August due to astronomically high food and fuel prices.
These factors are leading to the best of both worlds: increased domestic demand; and increased exports. Both of which are absolutely necessary to attract foreign investment dollars.
Number One Factor for Market Rebound: Foreign Direct Investment
Poland’s GDP growth of 5.8% is pretty astonishing when you consider that between September 12 and September 29, the Dow dropped 9.25%. And that’s being nice and not talking about the subsequent drops that took the Dow all the way down below 8,000 for the first time since March 2003.
And most markets fell right along with the Dow… emerging markets and developed economies alike.
But some emerging markets, and Poland in particular, have an ace up the sleeve: Foreign Direct Investment.
In fact, Poland received more than $17.5 billion in FDI in 2007 alone.
This is the single most important factor in the coming rebound of global markets, and Poland is seeing continued investment from foreign companies and foreign investors. So much so, that you don’t want to miss out.
And that’s just what investors like you are looking for. So let’s take a look at one of the biggest sectors in Poland…
Vodka Belts Lends to Accelerated Growth in Service Sectors
The Food and Drink industry contributes $39.6 billion, or 19.2% to Poland’s GDP. One of the reasons this sector does so well is because of vodka.
Some of you may not know that Poland is right on the edge of what’s called the “Vodka Belt,” a stretch of land that encompasses Lithuania, Latvia, Estonia, Poland, Belarus, Russia, and Ukraine, along with some Nordic states. These guys produce 70% of the vodka consumed in the European Union!
Vodka is the most popular spirit in the EU and, also, in the U.S. Actually, the U.S. has joined Russia and Ukraine as the top vodka markets around the world. Its popularity has even led to the creation of U.S. vodkas produced from grapes. Of course, the Vodka Belt can’t have that… It’s actually launching a campaign to have only spirits made from potatoes, grain or sugar beet molasses labeled as vodka.
Kind of like “real” champagne.
Regardless of how the name game falls out, vodka will remain the number one spirit in the world; and I’ve found a Polish distributor that’s cornered the market.
That company is Central European Distribution Corp. (CEDC: NASDAQ), and it’s been snapping up acquisitions all over Eastern Europe and Russia.
Central European Distribution Corp. is the leading vodka producer in Poland, and one of the largest in the world. It’s also the largest distributor of alcohol in Poland, with some exclusive beer deals.
Let me give you an idea of just how big CEDC’s portfolio of brands is…
Diageo (DEO: NYSE) is the world’s leading premium drinks business. It has a whopping 74 different brands in its portfolio.
Pernod Ricard (RI: Paris), the French firm that recently bought Absolut (the world’s third best selling vodka), has a respectable 15 different brands. CEDC has 900.
Yep, you heard me right: 900 different brands in its portfolio.
How can CEDC say that? Well, it doesn’t produce all 900 brands. Rather, a unique strategy of acquiring distributors, importer, and producers has made CEDC Europe’s leader in the alcoholic beverages market.
And here’s the news that created such a stir recently: On March 13, 2008, CEDC announced it had bought 85% of Parliament, Russia’s top premium vodka brand.
As a result of this acquisition, CEDC’s CEO, William V. Carey, raised its performance targets for 2008 from $1.3 billion to $1.4 billion in net sales, which means the company’s fully diluted earnings per share growth was up to between $2.25 to $2.40 a share (from $2.08 to $2.18).
CEDC has also raised its guidance for 2009…
Let’s put the cherry on top.
Russia is one of the fastest-growing spirits markets in the world. So fast that Lion Capital (LCHL.OB), a private equity firm in the U.K., is acquiring Russian Alcohol, the parent company of Green Mark and Zhuravli. Russian Alcohol is the world’s third-largest producer of vodka, after Smirnoff and Absolut. The deal is worth $600 million. But Lion Capital isn’t going it alone.
One of its partners is Central European Distribution Corp. CEDC’s stake will be 40%, or about $156.5 million. And CEDC will be able to up its stake beginning in 2010.
No wonder the company’s raising guidance for the next two years.
And yet, even after CEDC raised its guidance, it was absolutely slammed by the global market crisis. This is an amazing opportunity to get in this company. We’re seeing stock prices we haven’t seen for a year and a half… since before CEDC’s astronomical rise – and that’s a perfect time to buy in on this opportunity.
Buy Central European Distribution Corp. (CEDC: NASDAQ) at market.
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