Six Continents demerger: Don't bother to raise a glass or book in

John David has a sporting chance; Phytopharm still lacking that magic cure

Behind every demerger is a key to unlock the hidden value of a conglomerate, or so the theory goes. Which is why the last thing Six Continents needed was a slowdown in sales at pubs on Britain's high streets.

The hotels and pubs giant is bent on spinning off its retail arm next April, in the hope that once free from the chains of its struggling hotels, the pubs and restaurants side will flourish.

But full-year figures out yesterday from the group only confirmed an emerging trend: Britain is drinking less beer, less wine, less spirits. Just why, no one knows. Have you cut back in some kind of Puritanical preparation for the festive binge? Have you begun your new year's resolution early? Are you worried about your finances, or just put off going out by the weather? Something has triggered the carnage in the sector. Like-for-like sales at Six Continents' pubs and restaurants such as All Bar One and Brown's slumped 4.5 per cent in October and November.

Tim Clarke, the group's chief executive and designated boss of the pubs group, may be glad that 60 per cent of the group's pubs are "community orientated" (not on high streets or in Greater London) but that leaves 40 per cent that are. The inevitable promotions to lure back drinkers will hit margins, however much Mr Clarke promises to attack costs.

Which leaves the hotels – and the picture is not pretty. Operating profits fell by 39 per cent last year, dragging group pre-tax profits before exceptionals to end-September down 24 per cent to £558m. Worse still, Six Continents said it was more cautious about 2003 even than it had been in September, warning that corporate room rates (which make up two-thirds of its hotels business) are expected to be flat to slightly negative next year. Any recent uptick against the post-11 September numbers vanishes when figures are compared with those from 2000. Revenue per available room (the key industry benchmark) at its InterContinental hotels in the US is down by a staggering 27 per cent on two years ago.

The demerger can only be good news for a stock that has never recovered from its mismangement as a conglomerate, once based around the brewer Bass. But with 2003 riding on rocky consumer trends, the shares are best avoided.

John David has a sporting chance

John David, the retail group that owns JD Sport and First Sport, has tripped up. Its half-year figures yesterday missed forecasts and it has not found it easy to integrate a giant acquisition that doubled the size of the group earlier this year. The disappointment comes at a particularly unfortunate time because investors are fretting that UK consumers could be about to rein in their spending.

Profits in the six months to 30 September fell 30 per cent to £7.6m as a result of having to lay off management at the newly acquired First Sport and higher goodwill charges. That was below hopes, but worse was the like-for-like sales performance in the period and after. The company blamed the disruption caused by integrating the stocks and computer systems of the two halves of the group. The JD Sport chain's sales were down 2 per cent in the nine weeks since the half-year and First Sport has lost about 3 per cent of annual sales.

There is an element of "short term pain for long-term gain" because the work has been completed ahead of schedule and in time to avoid problems over the crucial Christmas trading period.

JD argues its brand-conscious young customers will continue to spend when other consumers may not, but after the acquisition, it does not yet have debt down to a level where investors can be wholly comfortable it will emerge from any downturn unscathed.

That said, JD is a strong business, with well developed relationships with its suppliers and an ambitious management. It hopes to boost its number of stores from 376 now to 600, and is constantly looking for bigger premises. There is also plenty of earnings growth in prospect from boosting First Sport's margins to the levels prevailing at the JD chain.

The shares, down 8.5p to 236.5p, are on such a modest multiple of likely earnings that they are worth keeping in stock.

Phytopharm still lacking that magic cure

Aspirin is derived from substances discovered in willow tree bark, so it is not fair to dismiss Phytopharm, as some have done, as a crackpot enterprise. It is seeking new drugs in exotic plants and, while it tends to have only a limited understanding of how some of these might work, appear to work they do.

Of course, it has had its share of failures. Who can forget the hilarious revelation that its "cure" for baldness was no more effective than moisturising cream?

For now the product pipeline includes a potential treatment for obesity – which has been licensed to Pfizer, the world's biggest drug maker – and a series of drugs for dementia and diseases such as Alzheimer's and Parkinson's. Work on these products, derived originally from a traditional Indian "tonic", is sapping Phytopharm's resources, and losses rose by a third to £3.8m in the year to 31 August, more than expected. Cash is down to £9.3m, just two years' worth, but licensing opportunities and the launch of a few pet drugs mean it plans to be profitable in 2004.

Many in the City take a sceptical approach to this company. A Cure For Baldness! A Cure For Ageing! There is a hint of hyperbole in some of its utterances. The odds are still against many of its drugs succeeding. Phytopharm's shares (up 1.5p to 116.5p) can make big advances on milestones such as licensing deals or positive trial results. But news flow is likely to be limited until midway through next year. Avoid.