Bottom Line: Morland leaves Greene King flat

MORLAND, the brewer, certainly rubbed it in yesterday by sending shareholders a sparkling annual report while Greene King, which failed to take it over last year, unrolled an interim statement as flat as its East Anglian heartland.

A 41 per cent leap in FRS3-style pre-tax profits to pounds 9.5m looks impressive enough. But blow off the froth, by ignoring last year's exceptional Morland bid costs, and the underlying picture is of a mere 1 per cent advance in profits.

Greene's legacy from its offer for Morland - a 29 per cent stake - may indeed form a useful line of defence in the unlikely event that Greene found itself on the receiving end of a takeover bid. A bid would hit the value of Morland shares on disposal fears.

The East Anglian company has encountered the same acute problem warned of by Wolverhampton & Dudley Breweries earlier this year - the unrelenting push for market share by the big brewers.

Greene has had to sacrifice beer margins to ward off the big battalions in a geographical area where the decline in beer consumption is more than three times the national average.

Since 55 per cent of its beer is pumped into a free-trade market awash with discount-hungry publicans, it can only continue to suffer from the price war.

What is more, 78 per cent of Greene's estate is tenanted. This deprives it of the lucrative opportunity to harvest high- yielding returns from pub food.

Greene is changing its estate mix, but progress will be slow, and it is becoming much harder to snap up large blocks of high-quality managed outlets.

One option is a fresh bid for Morland. But Greene would have a tough, almost impossible, task in convincing investors that it could do better than Morland's incumbent management.

Yesterday's results do not form a good base for starting up the argument again. A 4 per cent lift in the interim dividend to 3.85p is not much to shout about.

Shares in Morland, despite the doubts about another bid, shed just 5p to 538p. Greene, however, fell 15p to 553p.

On maintained annual profits of pounds 20.2m, Greene is trading on a p/e of 16 and a yield of 3 per cent on a 12.9p dividend. Sell.