Brewers look beyond ale in order to quench the City's thirst
STOCK MARKET WEEK
Tuesday 07 May 1996
Takeover action has, however, decimated the once plentiful ranks of the beerage. But, although their numbers have been reduced, the surviving brewers are, mainly thanks to their thirst for acquisitions, a much more powerful breed than the veritable army which once rushed to slake the City's thirst.
The days when brewers were content to merely produce beer are long gone. The giants have ventured far and wide for profits with the old-fashioned approach of just brewing beer and owning pubs largely the preserve of some big regionals, like the Wolverhampton & Dudley Breweries, and the smaller independents, such as Joseph Holt of Manchester, a brewer which has for long been inclined to miss the beer party by producing figures outside the generally accepted confines of the season.
Whitbread, kicking off the season tomorrow with year's figures, is an example of what was once a beer and pubs group which has stretched into other leisure areas.
It embraces coffee houses, hotels, off-licences and the David Lloyd sports centres as well as a string of eating establishments from the Beefeater pub/restaurant chain to the US style TG Friday. Beer production now represents only 15 per cent of operating profits and if Bass does manage to acquire Carlsberg-Tetley it will be a distant third in the beer rankings with some 13 per cent of the market.
It insists, however, it intends to stay loyal to its brewing heritage and remain a force in the industry.
At the height of the bruising pounds 3.9bn struggle for control of the Forte catering and hotel group, Whitbread underlined its ambition to be a rounded leisure operation with a pounds 1.05bn deal to buy Forte's budget hotels and roadside restaurants. Granada's stunning victory ended the Whitbread dream.
Still, the speed with which it made the Forte strike showed the brewer had the capacity and desire for substantial acquisitions. Not surprisingly, then, rumours have since linked it to an assortment of possible buys, ranging from the Pelican restaurants chain to the motorway service areas that Granada has been ordered to unload.
Dermot Carr at Nikko, the Japanese investment house, is looking for profits of pounds 279m, up from pounds 255m. For the current year he is on pounds 314m. He believes Whitbread will produce consistent growth and the shares, selling at 18 times forecast earnings, are worth buying.
But Whitbread, like other brewers owning pubs, could be unsettled next year by the umpteenth investigation into the industry - another European Union affair.
The worst scenario for the brewers is the EU probe into block exemptions will result in the destruction of the tied-house system, forcing brewers to sell (or free) their pubs.
Whitbread and the other big brewers have already been forced to unload 11,000 pubs following the Government's controversial Beer Orders. If all brewers, big and small, had to live without the cushion of the tie it would spell disaster for the smaller independents which the Beer Orders were intended to help. After the initial industry upheaval the big brewers would be in an even more powerful position than now.
Vaux Group, the regional brewer, also reports this week - interim figures on Thursday. It, too, has spread from its traditional business - into hotels and nursing homes. Swallow Hotels is one of the country's leading chains and likely to have provided much of the growth with group profits expected to emerge at pounds 13.5m against pounds 12.4m. Its nursing homes venture has not had the same success and Vaux has put its 35 homes on the market with a pounds 45m price tag. The group intends to devote the proceeds to its hotels and pubs.
Last week Greenalls, a similar company to Vaux until it gave up brewing to concentrate on hotels and pubs, sold its nursing homes for pounds 68m to Bupa.
Allied Domecq, the drinks group likely to retire from brewing, and Bass, bidding to overtake Scottish & Newcastle to become Britain's top brewer, check in with figures later this month.
Two oil giants overshadow this week's beer flow. Today British Petroleum produces first-quarter figures. A beneficiary of the strong crude price its net income should surge to, say, pounds 580m against pounds 464m. On Thursday, Shell's quarterly display will be rather more subdued - pounds 1,220m against pounds 1,280m.
J Sainsbury, the superstores giant which has suffered from intense competition, is another in retreat; year's profits tomorrow are, believe NatWest Securities, likely to be pounds 750m, down more than pounds 50m.
The group has been out-marketed and out-manoeuvred by Asda and Tesco and has lost market share, particularly among younger customers, leaving it with an ageing customer profile.
It has already prepared the market for disappointment with a January warning it will suffer a profits fall, its first in its 22 years as a quoted company.
Others in the results frame include Scottish Power which is likely to offer pounds 420m against pounds 357.3m. Interims are due from Royal Bank of Scotland (pounds 297m expected against pounds 270m), and Tate & Lyle (pounds 158m compared with pounds 152.8m). BSkyB with first-quarter results should make pounds 72m (pounds 49m).
Chiroscience, one of the high-flying biotechnology babes, reports today and should have details of its signalled pounds 40m cash call. Its shares were around 130p a year ago; recently they touched 588p on excitement about possible arthritis and cancer compounds. Then a warning of the impending rights issue calmed the frenzy which had lifted the shares more than 300p in less than two days. Like other bio babes, it is a long way from making money. It announced a pounds 9.2m loss last year and more red ink, perhaps pounds 11m worth, is expected.
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