Bottom Line: Achilles heel of the largest brewer

EXPECTATIONS that Bass has put the worst behind it, as evidenced by a near 20 per cent share price outperformance against the stock market this year, came in for a knock yesterday despite a first-half performance - pre-tax profits up 6 per cent and earnings 8 per cent higher thanks to a lower tax charge - that was better than many had forecast.

Beer, predictably enough, remains the Achilles heel for the UK's biggest brewer. Hopes that profits in this department, about 25 per cent of the operating total, would make up the first half shortfall in the second half were dashed yesterday.

In the great wholesale beer price war Bass may well be claiming to be ahead on volume, but pressure on profitability remains intense as the erosion of margins is slowing but not halting.

Hence the prospect of an even bigger restructuring charge than the pounds 6m seen in the first half. Bass's retreat from brewing is also signalled by a hefty 40 per cent drop in capital investment in the activity, mainly in the form of reduced free trade loans.

Leisure also looks disappointingly flat, due partly to poor weather at Coral but also to the rapid maturing of bingo clubs. This handicap leaves a revived Holiday Inns operation and a good performance from pub retailing - a combined 60 per cent of profits - to lead the charge.

With the shares down 8p to 535p, a yield of perhaps 5 per cent is still suitably cautious.