The Investment Column: UniChem sticks to winning formula

Boardroom cull could revive Regent Inns
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The Independent Online

Ian Meakins, newly arrived from the drinks group Diageo, began his tour of the City yesterday to introduce himself as the chief executive of Alliance UniChem, the pan-European drug wholesaler and pharmacies business. Analysts were pleased to discover he expects little in the way of strategic repositioning because, frankly, if it ain't broke...

Ian Meakins, newly arrived from the drinks group Diageo, began his tour of the City yesterday to introduce himself as the chief executive of Alliance UniChem, the pan-European drug wholesaler and pharmacies business. Analysts were pleased to discover he expects little in the way of strategic repositioning because, frankly, if it ain't broke...

Alliance UniChem shares have surged 36 per cent since we advised readers to buy back in February. The star division is the retail business, that is, the community pharmacies it runs in the UK (where it owns the Moss chain), Norway, the Netherlands, Italy and Switzerland. It has been adding to this business, with 87 new chemist's shops joining the group this year and the total rising to 1,181.

Sales and operating profits have beaten expectations here this year, the company said. Best of all, governments across Europe have been encouraging the local chemist to do more than simply dispensing drugs, suggesting they dispense advice as well. It is a trend that will only accelerate, given the desire to reduce national healthcare budgets and unclog doctors' surgeries.

Prospects for next year are a little unclear, given further deregulation of the UK pharmacy market, which will introduce some competition (but not as much as the Office of Fair Trading had proposed). Longer term, France and Germany could well deregulate to allow Alliance UniChem to enter these pharmacy markets.

On the wholesale side, the bigger part of the group, earnings growth has accelerated through the year, as the company attended to the nuts and bolts of corporate efficiency. With drug prices under downward pressure, wholesalers will have to share future pain with their pharmaceuticals suppliers, but here too Alliance UniChem has opportunities for geographical expansion that broadly outweigh the challenges.

Speculation that the company could be taken private has been an additional factor in its shares' rise this year and, on a multiple of 14 times next year's likely earnings, they now look fairly priced rather than cheap. Still a buy for the long term.

Boardroom cull could revive Regent Inns

It is no wonder some executives in the pubs sector have been eager to echo the Government's complaints about binge drinking and calls for an end to the super-cheap booze offers pioneered by JD Wetherspoon. The high street price war has floored profits just as the resultant bacchanalian frenzy has floored the customers. It has even sent several chains to the wall.

In October, Regent Inns looked like it might be on its way to oblivion, too. By yesterday, it looked like it may be sobering up.

Regent owns 66 Walkabout and Jongleurs venues but an overambitious expansion plan took it to the brink of breaching its banking agreements. After the ousting of the chief executive and finance director, the discovery of accounting mistakes proved it had, in fact, breached them. The banks could have pulled the plug.

Instead, we have new management, led by the Bob Ivell, formerly the head of Scottish & Newcastle's old pubs division. The team got a round of applause at yesterday's annual meeting for having reached a deal with the banks. In addition, Mr Ivell said he was axing the former chairman, Peter Savage, and a second non-executive, Nigel Potter, after their failure to prevent the collapse and the accounting mistakes.

So it is all change. And the biggest change of all is the reversal of two years of falling sales. Like-for-like, sales are up 2.2 per cent in the past 23 weeks, thanks to a pub-by-pub review of drinks prices, which has allowed it to raise the costs to its customers in some areas.

With £75m of debts, this is still a risky investment but, even before Mr Ivell's full strategy review is complete in the new year, it is worth betting that he can avoid a serious hangover for shareholders. Buy.

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