No Pain, No Gain: Too much froth and too few options in beer industry
Saturday 10 December 2005
Since I arrived in the City in the 1950s, beer has been an intoxicating investment. Takeovers have decimated the ranks of the beerage, causing dismay among real ale drinkers although shareholders have reaped rich rewards. But the happy-go-lucky days are over.
This year four pub-owning brewers and one that had given up producing but held on to its outlets have fallen to predators. Only six fully fledged brewers remain on the stock market. Further bids will occur although the decline in available targets means the chances of investors hitting the jackpot are slim.
It was all so different in my younger days. The old-fashioned beerage enjoyed a strong City following with analysts crawling over every aspect of what was a colourful industry. Back in the 1950s there were more than 100 quoted drink companies. In 1964 the Stock Exchange published a booklet recording share prices on the day capital gains tax was introduced. It listed more than 60 independent brewers, plus since departed cider makers, distillers and wine companies.
The brewing industry has been consumed by intense takeover activity for many years. It reached a rare old ferment in the decades following the Second World War, then subsided as targets became scarce.
This year has probably seen the last big corporate whirl. Scottish & Newcastle is the only survivor of the big six. Allied Domecq, taken over this year, had already given up beer for wines and spirits; Bass and Whitbread went down to foreign bids; parts of Watney Mann (indirectly) and Courage (directly) ended up with Scottish.
The other remaining players are Greene King and Wolverhampton & Dudley Breweries, both around the £1bn capitalisation mark, and family-controlled Fuller, Smith & Turner; Hardys & Hansons and Young & Co. Guinness is a segment of the Diageo spirits behemoth. Greene and Wolves each accounted for two of this year's victims with Fuller mopping up one.
Commercial and social changes and government interference have almost annihilated the old quoted beerage. A decline in beer consumption, the swing from ale to lager and the advent of garish high street bars have been important influences. Westminster's Beer Orders, which forced the major brewers to sell many of their pubs, and an uneven merger policy which, for example, blocked Bass from bidding for Allied and Courage, took an inevitable toll. It seems astonishing that the country's two biggest pub chains, Punch Taverns and Enterprise Inns, which have acquired former brewery-owned pubs, have assembled similarly sized estates for which Allied and Bass were penalised.
I long ago acquired a thirst for brewing shares and prospered from the takeover ferment. Indeed my first ever share was the now forgotten Massey's Burnley Brewery. I held three of this year's takeover crop, brewers George Gale & Co and Jennings Brothers and former brewer Burtonwood. My shareholdings in Gale, an unquoted company with a presence on two of the outer fringe share markets, and Jennings dated back to the 1970s. I was also a long-standing Allied shareholder.
The No Pain, No Gain portfolio has enjoyed the takeover action. It reaped rich rewards from the Allied and Burtonwood deals and from the takeover of cider maker Merrydown. Its only remaining drink constituent is Scottish, the nation's only player on the world stage. Scottish is by far Britain's biggest brewer but still lacks the global clout of, say, Anheuser-Busch of the US.
The portfolio is aimed at buy and hold investors. Sometimes, of course, a short-term involvement is unavoidable when an investment story changes quickly. I do not cater for day traders but for long-term players; Allied, Burtonwood and Merrydown were held for much of the portfolio's near seven-year life.
In view of past success I would like to strengthen the drinks link. But the options available are limited. I am uneasy about the heavy borrowings of Enterprise and Punch and although the five quoted brewers are well-run companies, their shares are fully valued on trading considerations.
However, I would not be surprised if the family-controlled groups are the subjects of bid attention. Burtonwood, Gale and another victim, TD Ridley, were family-dominated companies, unable to resist generous offers.
I am toying with the idea of adding the Pubs'n'Bars chain to the portfolio. It is a well-run but small business that could tempt an opportunistic bid. The other quoted pubs companies, Heavitree and Honeycombe, have little email@example.com
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