No Pain, No Gain: Guinness Peat shares sale will be felt at other small breweries
Saturday 04 June 2011
The oddly named security behemoth G4S has failed to fulfil my expectations since joining the no pain, no gain portfolio, a little more than a year ago. But my belief that the shares are destined to make a significant contribution to the well-being of my little investment exercise has been reinforced by one of those strategy presentations so beloved by the City. I do not think a dramatic upsurge is imminent. Yet, it would appear that the case for long-term appreciation remains strong and the Anglo-Danish group could soon be on a roll.
Chief executive, Nick Buckles, sees it returning to the more rewarding days it experienced before the financial crisis devastated the world's economy and continues to create havoc, particularly in the eurozone. In the past few years G4S's growth slowed. For example, in 2005, the group's organic turnover increased by 7 per cent and underlying profits by 16 per cent and in 2007 the figures were 9.1 per cent and 16.8 per cent. Last year's display was far less impressive – increases of 2.1 per cent and 4.2 per cent. Even if the earlier performances are not mirrored there must be every chance that G4S should manage around 8 or 9 per cent yearly progress.
Mr Buckles, it appears, believes the group will recapture its old pre-recession swerve and verve by the end of next year. Emerging markets will provide much of the growth. He is reported to have commented: "We believe sometime in the next five or so years, 50 per cent of our business will come from emerging markets." G4S is, he believes, exceedingly well placed to take advantage of the opening up of new areas. He also expects increased business in more established markets.
The group has, despite its relative slowdown, managed to keep profits and dividends moving ahead. Last year pre-tax profits came out at £330m and the dividend was lifted by 10 per cent.
For the current year the City expectation is profits nearer £380m with a 9 or 10 per cent dividend increase. G4S is keen to expand. It likes to buy relatively small bolt-ons and expects to spend some £200m adding to its international spread this year compared with an outlay of £65m last year. But, I would not be surprised if the group, which provides a wide range of services ranging from guards to sophisticated security systems, is contemplating something more substantial. After all, a significant acquisition could help ensure Mr Buckles achieves, even exceeds, his ambitious growth targets.
The portfolio arrived on G4S shares at 264p. As I write they are 281p. Stockbroker analysts are looking for them to hit around 330p this year.
Readers may recall that last year I discussed the beer ambitions of Guinness Peat, an activist investment group. It held stakes in a number of family-run brewers, clearly enticed by their under appreciated assets and, it hoped, waning hereditary influences. Well, it seems that the New Zealand-based group's adventure among the lower ranks of the beerage is coming to an end. Last week it sold its stake in Plus-traded East Anglian brewer, Adnams. Like a number of family-run brewers Adnams is protected by two classes of shares, an "anachronistic" structure GP sought, unsuccessfully, to abolish.
It had earlier won a famous victory when after a long battle it persuaded Young & Co. to abandon a similar protective share structure. In those days Young operated a London brewery which has since been sold. Nowadays it has a pub chain and a 40 per cent interest in brewer, Wells & Young's.
The Adnams sale is part of GP's plan to distribute some £80m to shareholders by selling non-core investments. So shares of Shepherd Neame, the nation's oldest brewer, and Daniel Thwaites of Blackburn, both traded on the fringe Plus market, could feel the impact of this new policy. At the last count GP had 3.1 per cent of Sheps and 9 per cent of Thwaites. Perhaps, significantly, Thwaites shares are bumping along at a 12-month low. GP, once a City merchant bank run by the Guinness brewing family, also has 15.1 per cent of AIM-traded Young's. It appears to have sold its 4.75 stake in Fuller, Smith & Turner, the fully listed London Pride brewer.
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