Shares: Two future apples of the market's eye: The UK's two big cider makers are riding high on promising prospects for the 1990s, Quentin Lumsden reports

ALTHOUGH the flotation of Taunton Cider ranked as a flop in terms of the public response to the issue, institutional interest was clearly strong. Despite the weakest stock market background since 1990, the shares moved immediately to a premium over the 140p flotation price and now stand close to their peak at 160p.

At the same time, the share price of the industry leader, HP Bulmer, stands at an all-time high of 316p, after its lacklustre performance for much of the Eighties.

The reason is that new approaches to product development and marketing are transforming the profitability of the cider business. It is possible that cider is going to enjoy the sort of growth in the Nineties that lager enjoyed in the Eighties.

On a very long-term view, it could be argued that cider has always been a growth business. Sales have grown from 31 million gallons in 1970 to 77 million gallons in 1991, with a total retail value of pounds 600m. Bulmer's share price has risen by almost 3,000 per cent over this period, which qualifies it as one of the stock market's more successful investments.

There was a dramatic spurt of growth in the early Eighties, when supermarket and pub sales of bottled and packaged cider brands, such as Taunton's Dry Blackthorn and Bulmer's Strongbow, soared. There was then a flat period, as duty changes eroded cider's price advantage and the industry curtailed marketing support.

Now there are growing signs of a new leap forward, fuelled by the combination of a successful creation of a new class of premium ciders and aggressive high-spending marketing. Typical of the new brands are Taunton's Diamond White, Red Rock and Brody or Bulmer's Scrumpy Jack and 1727. They are packaged and sold in bottles and cans reminiscent of up-market lagers, at prices about double those of mainstream ciders. Support comes from advertising spending, which - on a per-gallon basis - exceeds that spent on beer advertising. Taunton, for example, spent 12 per cent of its 1991-92 turnover on advertising and promotion.

The result is that the big cider companies are coming through a fierce recession with strong growth in earnings and dividends. Bulmer recently reported a 23 per cent increase in earnings per share for the year to 30 April 1992 and is likely to make further solid progress in the current year with the help of good weather. Taunton Cider has more than trebled profits from continuing operations since 1988 and said in its prospectus that sales in the first eight weeks of the current financial year (to 31 May 1993) were well ahead of those in the same period a year earlier, as well as the group's budget.

The cider makers also have the advantage of not owning or managing pubs, which are generally having a hard time in the current economic climate. Nor have they run foul of the monopolies authorities in the way the big brewers have.

(Photograph omitted)