Investment Column: Not much fizz left in Allied shares

Freeport has designs on Europe, but it's a punt
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The Independent Online

Although many people in the UK think Malibu is as cool and exclusive as a Ford Cortina, Allied Domecq has done pretty well around the world in making its customers pay more for the coconut rum. Volumes of every chav's favourite cocktail ingredient have grown 30 per cent in the two years since it bought the brand.

Although many people in the UK think Malibu is as cool and exclusive as a Ford Cortina, Allied Domecq has done pretty well around the world in making its customers pay more for the coconut rum. Volumes of every chav's favourite cocktail ingredient have grown 30 per cent in the two years since it bought the brand.

There is not much fizz in the global drinks market, so Allied has pursued a strategy of gently raising prices for Malibu and its other core brands, including Sauza tequila, Ballantine's whisky, Courvoisier cognac and Beefeater gin.

But could it perform the same trick of pushing upmarket brands in the wine market, too? Yesterday it showed it could. The shift in pricing is knocking the volume of sales of vino, but profits at the wine division were one of the strongest in the group, up 13 per cent over the year compared with 6 per cent for the group as a whole.

This strategy of encouraging consumers to pay for more upmarket brands has been most successful in the US, where the economy has been strong and cocktail-drinking is becoming more popular. In parts of Europe, such as Germany, for example, the reverse has been the case, as the economy languishes and consumers have been looking for cheaper ways to drown their sorrows. Allied is instead pushing into emerging markets, such as Eastern Europe and Latin America, where disposable incomes are higher and Western brands have instant appeal.

Allied's shares have raced ahead on vague talk of a takeover bid and the hope that it could sell its fast food outlets - Baskin' Robbins and Dunkin' Donuts - for a tasty profit. As much as £200m from its stake in soon-to-float Britvic, the soft drinks company, is already coming its way. But the fact is that the growth of the core business still looks pretty sober, at about 6 per cent a year.

The shares trade on 13 times next year's earnings and yield a 3.3 per cent dividend. They are fully valued.

Freeport has designs on Europe, but it's a punt

For once in my life, I might have sold something at the top of the market. So says Sean Collidge, the founder and chairman of Freeport, the shopping malls group which is getting out of the UK to concentrate on developments in Continental Europe.

He is probably right as consumer spending (eventually) slows and the heat goes out of property sector investing.

Freeport's specialism is out-of-town "designer outlet centres", where the likes of Zara, Versace, Sony and others flog end-of-season lines for up to half price, and which also house cinemas, bowling alleys and restaurants. It sold sites in Braintree, Castleford and Fleetwood, leaving it with just two, in Yorkshire and Scotland, to sell. The disposals to date have been at a poor price, and have gone down poorly, but they yielded a £53m special dividend for shareholders and there could be more cash to be returned.

Freeport's European adventure has so far been plagued with problems - poor trading in Sweden and a planning glitch in France - but its new, biggest centre, in Portugal, opened strongly. With the shares, at 316.5p, on a 28 per cent discount to asset values, there will be a lot of upside if Mr Collidge gets it right. A speculative buy.

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