The Week In Review: Now it's happy hour for pub shareholders

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The Independent Online


Do you remember those "Pubs call time on happy hour" headlines from a couple of months ago? Forget social responsibility - in any other context this would have been condemned as a cartel in action: significant players in one industry clubbing together to agree to raise prices.

Shareholders in pub companies should be delighted. After years of vicious competition for business, price rises are to become the norm. Is this enough to justify being more bullish on the sector as a whole?

Some pubs are run directly from head office - all those run by Wetherspoon and M&B, and a substantial minority at Wolverhampton & Dudley Breweries and Greene King. In contrast, the two biggest pubs groups, Enterprise Inns and Punch Taverns, lease their pubs to a local landlord, harvesting a predictable rent rather than facing the ups and downs of sales and costs.

The stock market has preferred the latter concept, but an easing of cost pressures in the managed chains could change that. So we avoid the sector's biggest company, Enterprise, and Punch, preferring Mitchells & Butlers as a long-term tip.

Similarly, Wolves & Dudley looks better value than Greene King. Finally, JD Wetherspoon, widely written off by analysts, is a speculative recovery punt.


Xstrata is one of five mining companies in the FTSE 100, but it does not have the global scale and diversity of assets of its mightiest rivals - yet. Since its flotation in 2002, the company has spent £1.4bn to acquire MIM and expand into the growth market for copper. Soaring commodities prices were the main reason for a 73 per cent jump in earnings per share in the first half of the year. On the other side of the balance sheet, Xstrata is reaping cost savings. Buy for the long-term.


A company only has to mention internet gambling to send its shares soaring. FireOne's shares have doubled since it floated at 241p nine weeks ago. It shuffles money from gamblers to gaming sites, getting a tenth of its profit from traditional credit card processing, and the rest from its "e-wallet", where gamblers put in cash and online sites take it out. With growth from the roll-out of broadband and from mobile gaming, there are more gains to come. Speculative buy.


One company is delighted about the new international financial reporting standards. St Ives prints company documents for distribution to shareholders, and the tough new IFRS rules have meant longer statements. This is the silver lining to the company's latest trading update, which is otherwise pretty thin. Printing carries high fixed costs and continues to be plagued by overcapacity. St Ives shares are dear at 12 times next year's earnings. Avoid.


The car dealer focuses on volume car marques, such as Vauxhall, Renault and Honda, and has just made its seventh acquisition in a year. It is buying two Volvo dealerships to take it into Scotland for the first time. The acquisitions will be increasingly important as the market for new cars turns down. The company is already on course to make profits of £18.4m this year, according to its broker. On a multiple of earnings, it is the cheapest car dealer in the sector. Park it in your portfolio.


Management Consulting Group has consultants in two divisions: Proudfoot, which advises on how to implement organisational changes, and Parson, which suggests new financial controls. Having maintained sales over the past six months, the company now aims to grow both organically and with a big acquisition. But it will be a volatile ride. We said buy when the shares were 45.75p in 2003, and they have been all over the place since then. At current prices, they are only for the brave.


Spirent, the No 2 quoted telecoms equipment maker after Marconi, is back in the red, thanks to two major US customers, the operators SBC and Verizon, which are in the throes of (separate) merger deals. These have disrupted their buying of "service assurance" equipment from Spirent. The expectation is that cost cuts will tide the division over until new orders for equipment arrive. Sceptics will want to wait for evidence of these orders but braver investors could do well to jump in now. Buy.


Aquarius Platinum, the mining group, has reported net profits down 27 per cent following problems at its operation in Marikana, South Africa. The company has also faced a tricky negotiation over black empowerment laws in the country, as well as a tough time with Robert Mugabe's regime in Zimbabwe. Still, demand for platinum looks set to stay high and Aquarius has been expanding production. The shares are back close to where we tipped them in 2004. Buy.


Much is written about P&O's famous ferry operations but its ports business makes up over 80 per cent of the value of the group. And while the company took a hit on its ferry revenues in the first half, the latter business again delivered the goods. The big attraction of owning P&O shares is the great prospects of its global ports operations. The shares remain a solid hold.

Biggest brewer raises sales by lowering the temperature

Scottish & Newcastle (S&N), the UK's largest brewer - with brands including Foster's, Kronenbourg, John Smith's and Strongbow - has been trying to inject some fizz into its years-long stale results.

Beer is a well-established consumer staple in the UK and most of Western Europe, and the market is in decline as consumers broaden their drinking habits.

After a serious round of cost cuts, S&N has, at least, squeezed out some extra cash to reinvest in marketing its top brands. Cold beer is about as radically innovative as marketing gets in this industry, and so S&N's Superchilled technology, which keeps pints colder for longer, has done wonders to make lager more interesting again.

S&N says that during the first six months of the year, its four top brands grew 5.5 per cent. Foster's has seen sales grow 6.3 per cent, and in an ale market that was down 7 per cent, sales of S&N's John Smith's are up 3.2 per cent. This Superchilled formula is now being adapted across other brands.

While the rest of Western Europe is proving more difficult to seduce, there is some good news further east. S&N's joint venture with Carlsberg, BBH, produces Russia's leading beer and it delivered a 32 per cent growth in operating profits during the first half. S&N is also beefing up investments in India and China, potentially two of the biggest markets in the world. Sales are still very small and will take time to build in to a meaningful contribution to the group.

At the beginning of the year, we reckoned the shares were fully valued at about 454p. The market agreed - with a dividend yield of 5 per cent and the constant background noise of takeover speculation, the shares are still worth holding.

The above are recommendations taken from the daily Investment Column.

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