This time, I think a beer will refresh the portfolio

Derek Pain: Good time to look into liquid assets
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The Independent Online

Burtonwood Brewery has failed to produce much of a ferment since its shares were floated in the Sixties. And, as a small, old economy company stuck in an out-of-favour segment of the stock market there is, perhaps, little obvious reason for getting enthusiastic about the group.

Burtonwood Brewery has failed to produce much of a ferment since its shares were floated in the Sixties. And, as a small, old economy company stuck in an out-of-favour segment of the stock market there is, perhaps, little obvious reason for getting enthusiastic about the group.

Yet, even in these days of utter indifference towards traditional businesses, there is a strong case for looking at the old-established Warrington (Cheshire) operation.

Its shares are on a low rating, selling at around seven times expected earnings and offering a possible 4.5 per cent dividend yield. A great many little 'uns are looking exceedingly cheap on historic measurements. They are shunned by major institutional investors and, despite the high-tech meltdown, dependable old economy companies are still regarded with disdain by many private shareholders.

But the stock market is a creature of fashion. Although brewers - and to a lesser extent pub chains - are not the tipple of the month there is every chance some of the low ratings will soon awaken investors' appetites.

Burtonwood, which I have decided to add to the no pain, no gain portfolio, has in recent years rolled out encouraging results. In its last year they were £6.3m, up from £4.9m, with earnings per share coming near to doubling over three years.

Charterhouse Securities expects profits of £7.4m this year and £8m next year. But Burtonwood is no longer a fully fledged member of the beerage. It has reduced its interest in its brewery to 40 per cent and spends most of its time on its 500-strong pubs chain.

The company is keen to expand its estate. It failed to buy the Paramount pubs chain and is thought to have been a bidder for Café Inns, which went to the Lakeland brewer, Jennings Brothers. Burtonwood is casting around for acquisitions but is finding it difficult to come to terms with pub valuations.

The consolidation scramble in the pubs business has increased the value of Burtonwood's estate and, if it is unable to expand, it could be tempted to realise some of its outlets. In addition, there is always the chance of a takeover bid, although the founding family and friends have around 40 per cent of the capital. Chairman John Dutton-Forshaw recently modestly increased his stake. Over the years, Burtonwood shares have felt the influence of takeover rumours. They once topped 250p and earlier this year were riding above 200p.

Assets are more than 370p a share and there is cash in the bank. The shares are an interesting bet. They may achieve a deserved re-rating on trading grounds; the group could put through a pubs deal which will make the stock market wake up to its attractions or it could accommodate, either through a full or partial bid, a hungry predator. And with an under-valued share, the possibility of a management buy-out cannot be ignored. I feel pub shares are so under-rated that, as I signalled last week, Burtonwood, at 185.5p, should join the portfolio. It is an ideal replacement for Paramount, one of our successful excursions into pubs.

Two portfolio constituents have been in action. Galliford, the builder, is merging with another construction group, Try, to form Galliford Try. The merger, funded by Galliford shares, will create a much stronger force in a fiercely competitive industry. But I am reserving judgement whether the enlarged Galliford should remain in the portfolio. So far, the shares have not responded positively to the deal and there is a danger they could fall further if former Try shareholders decide they do not want to stay aboard.

Gowrings, the fast food to garages group, has recorded another profits advance with half-term figures up 16 per cent to £571,000 and the dividend increased by 7 per cent. It has 38 Burger King restaurants; and four more are in the pipeline.

There have been a couple of interesting stockbroker comments. Analyst Peter Cooper at Brewin Dolphin expects Inter Link Foods to produce profits of £1.6m this year and £2m next. Last time it achieved £1.1m.

Seymour Pierce says Weeks, a consultancy, should make profits of £1.25m this year with £1.5m in sight next year. Last time profits were £786,000. Analyst Leslie Kent expects Weeks to improve its share of what is a fragmented market "which should be reflected in exciting growth in profits, earnings and shareholder value".

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