The Week In Review: Time for Scottish & Newcastle to get a more sober view

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The Independent Online

With brands like Fosters, Kronenbourg 1664, Strongbow and John Smith's lined up on the bar, you might think Scottish & Newcastle, the leading brewer in the UK, would be investors' best drinking buddy.

With brands like Fosters, Kronenbourg 1664, Strongbow and John Smith's lined up on the bar, you might think Scottish & Newcastle, the leading brewer in the UK, would be investors' best drinking buddy.

But a cocktail of acquisitions and disposals over the years has left it badly co-ordinated and incoherent. Tony Froggatt, who came in as chief executive in May 2003, only now seems to be sobering up the company.

He introduced much-needed cost-cutting in the UK, closing its historic Edinburgh and Newcastle breweries and sacking managers. But the UK and western Europe as a whole is a mature market for beer. S&N can try to flog more of its existing brands to build market share, but there seems little it can do to stop UK supermarkets from driving down prices and profitability.

Other markets are emerging. Newcastle Brown Ale is a big hit in the US, and S&N is growing in Eastern Europe. BBH, its joint venture with Carlsberg, is the market leader in Russia, but profitability is being cut to gain market share.

And while S&N's sales are predominately in the UK and France, growth is difficult. With a yield of 5 per cent, the shares will be attractive to income investors, but not for growth.


Smiths is a conglomerate, with operations making and servicing aeroplane parts, selling medical equipment, and also including diverse engineering businesses. It ought to provide some highly desirable returns for shareholders now that it is firing on all cylinders. It has suffered in the civil aviation downturn of the last four years, when parts have been stripped off grounded aircraft rather than purchased new from Smiths, but this division is growing again. Buy.


PKL supplies kitchen equipment to events such as Glastonbury and the Olympics and is about to launch a service to supply and maintain canteen equipment for schools, pubs and prisons. There is also growth from a healthcare division designing pre-fab buildings for hospitals, offering a way to build new NHS facilities quickly. PKL shares look a touch overcooked for this sort of business, but they could be worth a punt for long-term investors who can stand the heat.


Inchcape's car dealerships include Mercedes-Benz, BMW, Ferrari and Toyota/Lexus and are spread over many countries. It has been enjoying strong sales and, in the European Union, new rules have cut the ties which used to allow manufacturers to dictate to dealers how they do business. This has meant that Inchcape went out and bought rivals as well as swapped dealerships with other companies to produce more coherent regional coverage. Buy.


Two profits warnings, management changes and a breach of banking covenants have not endeared Filtronic to the City. The company makes electronic equipment for mobile phone handsets and for base stations infrastructure. Its customers in the mobile industry have demanded price cuts, but Filtronic has a promising business and is the cheapest semiconductor stock in the UK. Hold.


The combination of relocating major parts of its manufacturing to low-cost Asia has paid off for Laird Group, the engineering company whose diverse products include electromagnetic shields for the electronics industry and locks for windows. As well as the cheaper Far Eastern labour reducing costs, Laird's sales have also benefited from the company being closer to its customers in the growing telecoms and electronics market in the Far East. Attractive for the long-term.


Morgan Crucible, the engineer, is on its way back from the brink after having racked up enormous debts, mismanaged a string of acquisitions and seen trading slide during the post-Millennium economic downturn. The shape of the group has improved under a new chief executive: out have gone high volume, low profitability businesses and the focus is now on higher tech products across a vast range of industries. Buy


Gourmet started out as the Madisons coffee shop chain, but after failing to compete with Starbucks, it made a quiet exit. It was left with four unexciting restaurants in central London, operating under the Richoux brand, and has decided to move into gastropubs, offering high quality food within a pub. The shares are only for those with an adventurous palate.


Matt Barrett, the chief executive of Barclays, has kept things ticking over nicely in the core high street banking operations, despite competition. And he has bolstered other businesses in stockbroking, institutional fund management and investment banking. All these, and the Barclaycard credit cards division, are poised to expand abroad. The crowning glory for this stock is the dividend which, at the current share price, yields nigh on 5 per cent. That's great considering the capital growth prospects. Buy.


GKN sold its half of the AgustaWestland helicopters business to Finmeccanica, its Italian partner, for £1.1bn in May and is now 85 per cent-focused on the automotive market. The new slimmed down company is a more attractive morsel for an international predator and the introduction of a bid premium into the share price should offset worries over the global car market. Buy.


Anglo American has turned base metal into shareholder gold this year. Record selling prices for copper, nickel and zinc have combined with increased production to generate record profits for the mining group. Anglo American's portfolio of assets spans base, precious and ferrous metals, industrial minerals, coal and paper and packaging. But its shares still have a dividend yield of only 2.6 per cent, and there will be better times to back the company's unique brand of alchemy.

Strength in the Union

While consumers have been blissfully piling up debt on their credit cards, Aviva, the insurance company owning Norwich Union, has struggled to persuade the public to think about saving instead.

So business at Norwich Union is slow, but it is only a matter of time until it picks up. The alternative is that we all die poor.

Norwich Union is the biggest brand in British life insurance, and it could well increase its share of the market when rules on who can sell savings products are freed up later this year. The changes will mean more banks and building societies selling its products.

Meanwhile, it is likely to be allowed to charge more for new savings products than previously feared under government plans for price caps.

Investors can get jittery over Aviva and other insurers when stock markets are turbulent, as they invest so much of their policyholders' money in shares. However, the company's solvency is not in question and it has £4.2bn of surplus assets.

Best of all, while the UK life market has been tough, one third of Aviva's business is general insurance, where premiums have been holding up well.

More than half Aviva's business is now overseas and its continental Europe operations now outstrip the UK in terms of life and pension sales. It is signing smart tie-ups with local banks who sell its products through their branches. Aviva is also gearing up its expansion into the growing Asian markets.

Aviva shares are still good value, particularly as the dividend yields around 5 per cent. A core holding for the long-term investor.

The above is a selection from the daily Investment Column

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