The Investment Column: Growing pub group W&D is a hold

Don't ring up Kingston just yet - Maiden not a winner in the election crossfire
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The Independent Online

Wolverhampton & Dudley Breweries, the Midlands-based pub company, controversially spurned a takeover bid pitched at 513p-per-share in 2001. Its decision has been vindicated - and then some.

Wolverhampton & Dudley Breweries, the Midlands-based pub company, controversially spurned a takeover bid pitched at 513p-per-share in 2001. Its decision has been vindicated - and then some.

Last year, after a five-year hiatus, the company had the confidence to hit the acquisition trail, first snapping up the 63-strong Wizard Inns estate and then, in December, buying the stock-market-quoted Burtonwood Breweries and its 460 pubs for £155m. W&D has moved beyond its Midlands heartland to have a growing presence in the North-west and the South-east, which is the focus of its Pitcher & Piano chain. The company is a growing force in the pubs industry, with 2,135 venues.

The pubs are grouped into two businesses: Pathfinder Pubs, which are managed directly from head office, and the bigger Union Pub Company, which leases its venues to tenant landlords. A trading update yesterday said that, in the 24 weeks to 19 March, managed pub sales were up 3.1 per cent; sales at the tenanted pubs were up 3.2 per cent. Trading over the Easter weekend was also good.

The rest of the business, representing about a sixth of profit, is in its traditional brewing side, which sells about a million pints a day. Brands such as Marston's Pedigree, Old Empire and Banks's Bitter have won new supply deals beyond the W&D estate and turnover and volumes have been strong.

W&D originally promised £3m in head office savings from the Burtonwood acquisition, but that now looks like being nearer to £4m. There is also the potential uplift to the stated value of the group's property portfolio as 25 per cent of the estate is up for revaluation this year on its rolling five-year cycle.

As Ralph Findlay, the chief executive, said yesterday, the outlook for consumer spending is weakening, and declining a blow-out meal at the local pub seems an obvious means of belt-tightening. However, W&D shares at 11.25p are still not over-priced on 13 times earnings and they yield a decent 3.6 per cent dividend. Hold.

Don't ring up Kingston just yet

You will know from the constant bombardment of advertising of broadband services that telecoms companies are bashing each other over the head to win new internet business, in much the same way as they have constantly undercut each other to win new voice-call customers in recent years. Behind all this, the vast over-capacity in telecoms networks built up in the pre-Millennium investment boom. And still, disappointing financial results from alternative telecoms companies (so-called because they are an alternative to BT) such as Kingston Communications.

Kingston has a unique history as the municipal telecoms company of Hull, and this area is still providing a bedrock of solid business but, nationwide, competition is as tough as ever for the business customers it has chosen to focus most of its services on. The company said yesterday the financial year just ending will bring in earnings before interest, tax and write-downs within the range of analysts' forecasts (£60m-£64m) but it is slow progress.

Kingston is creating a single marketing operation for its recent acquisitions, but overall financial progress is slow despite the uptake of broadband. There could be news soon on sales of overseas businesses, but there must be significant evidence of market share gains in the UK before Kingston can be an attractive bet for the private investor.

Maiden not a winner in the election crossfire

You would have thought that the prospect of Michael Howard and Tony Blair battling it out through increasingly shrill billboard ads would excite Maiden Group.

But the outdoor advertising company was forced to deliver a mild profits warning yesterday. The trouble is that the political parties are holding off until the election date is actually set, while consumer advertisers are already holding back, too: companies do not like trying to compete with political messages during the feverish atmosphere of a political campaign.

Maiden said the billboard market - where it is the UK market leader - is challenging anyway. Analysts duly pulled back forecasts for 2005, with Numis Securities coming down from £8.5m to £8.0m.

As well as the big billboards, 40 per cent of Maiden's business is other posters, to be found on retail sites (shopping centres and out-of-town supermarkets) and on the railways. It is in this smaller part of the business where things are progressing well. During last year, it managed to re-sign 89 per cent of rail estate and it increased the size of its retail estate.

The election really ought to be just a timing issue for the company but at 240p, its shares are trading on a forward multiple of 22 times, which means they are not tempting.

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