Polish Vodka Distributor Is Worth a Shot

Eleven months ago, on a trip to Bialystok, I found time to wipe the lager foam from my nose and write up a recommendation of Central European Distribution (CEDC). Based in Warsaw, it's Poland's largest distributor of local and imported beer and spirits. Poland, in turn, is the world's No. 2 vodka drinker and Europe's No. 4 beer drinker.

Higher incomes in Poland mean young drinkers are swapping cheap domestic brands for snootier, and more lucrative, foreign ones. Since 1996 more than 80% of Poland's spirits distributors have been swallowed by larger players, with Central European proving, perhaps, the savviest buyer. The stock had already multiplied 17 times in value between August 1998, when it debuted on Nasdaq, and my May column. Since then it has surged another 80%, while the S&P 500 index has slipped 10%.

The company now control's a third of Poland's vodka trade. Antimonopoly laws say it can't buy its way beyond 40%. But it's still growing at a heady pace. Recent expansion into Hungary bodes well for Central European, justifying its name and perhaps allowing it to eventually dominate the region. And its purchase of majority interests in Russian companies including Whitehall, a major importer, and Parliament, a premium vodka brand, give it entrance into a market whose population, while half that of America, buys four times as much vodka.

Foreign distribution of Polish brands might help even more (and might take a nick out of Poland's aforementioned trade deficit). Zubrowka, recognized for the blade of bison grass floating in each bottle, seems the most promising brand for that. I'm not a great judge of, or fan of, vodka. The goal of the priciest ones seems to be to taste like nothing. But Zubrowka, indeed, tastes like nothing, and so maybe it's good. The French seem to think so. It ranks No. 2 there for imports. The company now has distribution agreements for 30 countries, including the U.K. and U.S.

Sales for Central European are seen swelling 23% this year to $1.46 billion. In testament to how scale favors the booze pushers, profits are expected to jump 39% to $2.35. That puts the stock at 26 times this year's earnings forecast, making it nearly twice as expensive as the average American stock. In 2009 — this number is surely less reliable than the current-year estimate — Wall Street expects the company's profits to plump up another 19%. That's just about enough growth to warrant a second round of Central European shares, although in truth, I'm not quite as thirsty for it as at 20 times earnings back in May.

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