The Investment Column: Solid dividend and strong brands make S&N a hold

Time is right to step on the internet gambling bandwagon with FireOne - Overcapacity worries weigh on St Ives
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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 towards spirits, wine and other forms of grog.

But 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 draught lager more interesting again. S&N said yesterday that over the first six months of 2005, its four top brands had grown 5.5 per cent. Foster's - the chief beneficiary of being Superchilled - has seen sales grow 6.3 per cent, and in an ale market that was down 7 per cent, S&N's John Smith's, which also has an Extra Cold variety, saw sales up 3.2 per cent. This Superchilled formula is now being adapted across other brands, with Kronenbourg to receive the cold treatment next.

The rest of Western Europe is proving more difficult to seduce, however. Volumes in Belgium and France declined, sending operating profits in the division down 10 per cent. Imminent smoking bans in the UK and across Europe will also add to the difficult conditions in these markets.

Eastern Europe remains the bright spot for growth. S&N's joint venture with Carlsberg, BBH, produces Russia's leading beer and it delivered a 32 per cent growth in operating profits over the first half. S&N is also beefing up its investments in India and China, potentially two of the biggest beer 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 its shares were fully valued at about 454p. The market appears to have agreed with us, and shares are now only at 458.75p. This values them at about 14 times earnings - a fair price given its reliance on mature markets.

So while S&N is making a creditable job of pushing its brands in the flat UK and Western European markets and is proving it can expand into newer territories, there is not much here to intoxicate new investors. With a dividend yield of 5 per cent and the constant background noise of takeover speculation, its shares are worth holding.

Time is right to step on the internet gambling bandwagon with FireOne

Enough already? A company only has to mention internet gambling to send its shares soaring, the equivalent of appending ".com" to their name five years ago. But, while investors must be wary, this is not a market mania in the same vein.

Because companies are making money out of internet gambling. Lots of it.

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. Since online gambling is, technically, illegal in the US, this is a vital service, and FireOne is No 2 to NETeller.

It was carved out of a bigger Canadian payments group, Optimal. Sceptical investors ask: if Optimal thinks this is a business with enormous potential, why sell 20 per cent of it? FireOne says: if they don't, why sell only 20 per cent? The large margins FireOne can command will come down - eventually. The growth in online poker will slow down - eventually. Not yet.

Maiden interim results showed pre-tax profits more than doubled, and FireOne's broker, Numis, thinks it will double again next year. The difference between now and nine weeks ago is that Numis must be right to justify the 486p share price. With growth from the roll-out of broadband and from mobile gaming, we think it will. Speculative buy.

Overcapacity worries weigh on St Ives

There is someone who is delighted about the new international financial reporting standards, introduced this year to the vexation of companies and the confusion of investors across the UK. He is Miles Emley, the chairman of the printing group St Ives.

The company, you see, prints annual reports and other company documents for distribution to shareholders, and the new IFRS rules have meant longer, more complicated statements. The number of pages in an average annual report has gone up dramatically, which means more money for St Ives.

This was a silver lining to yesterday's trading update from Mr Emley, but to be honest it was a pretty thin one. Printing is an industry with very high fixed costs, in terms of big premises and energy-guzzling machines, and it continues to be plagued by overcapacity. There are too many printers chasing too little work, and you don't even want to think about what might happen if e-mail and the internet really starts to eat into paper publication.

St Ives is doing its best. The company closed its Caerphilly factory in June, and is pursuing cost savings across the business. It is also trying for specialist contracts, with shorter print runs and quick turnaround times, where it might just about be able to charge higher prices. But although yesterday's trading update promised the company will meet City forecasts for the year to July, its shares trade on 12 times next year's earnings and look dear. Avoid.

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