Brewing still a problem for Bass

THE TRADING statement from Bass yesterday was essentially a mixed assortment with the hotels and leisure divisions doing better than some City expectations but brewing still proving a problem.

The hotels division, which has been boosted by last year's acquisition of Inter-Continental Hotels, has been riding the back of the strong US consumer economy.

Revenue per available room in the Holiday Inn business was up by 6.7 per cent in the first 16 weeks of Bass's financial year.

Inter-Continental is also doing well with figures up by 9 per cent on the same basis. However, some analysts were disappointed that they were not able to upgrade full-year profit forecasts as most of the additional hotel profits are being re-invested, particularly in upgrading systems.

Elsewhere the picture was mixed, although the longer-term picture is still attractive. The pubs and restaurants business, which includes Harvester, All Bar One and O'Neill's, is performing in line, with food sales up by 1 per cent and drinks edging up by 1 per cent. However, on a like-for- like basis sales are down by 3.2 per cent.

The conundrum for Bass, chaired by Sir Ian Prosser, is that it has an international hotels business combined with an essentially UK brewing and pub operation that is operating in mature markets. The UK beer market remains difficult and this showed in Bass' figures, with on-trade sales down 2.2 per cent in current trading and off-trade sales down over 13 per cent as the group is not prepared to sacrifice margins to buy sales.

Bass has tried to expand overseas by buying the Staropramen brewer in the Czech Republic. But the acquisition has not gone well.

On the plus side Bass's strong portfolio of brands, both in drinks and in pubs and restaurants, will stand it in good stead if consumer spending is kickstarted by lower interest rates.

Assuming full-year profits of about pounds 680m, the shares - down 3p to 853.5p - trade on a forward multiple of 14. John Beaumont, drinks analyst at Merrill Lynch rates the stock an "accumulate" indicating an expected rise of around 10 per cent in the year.

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