The Investment Column: Mixed fortunes at Allied Domecq

McCarthy & Stone built on firm foundations; Hold on to Laura Ashley while it's in full bloom
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The Independent Online

Malibu Rum is still a favourite tipple for thousands of British boozers, and for Allied Domecq, the drinks giant that makes it. But overall volumes at Allied, which also has Tia Maria, Courvoisier brandy and Beefeater gin as the staples in its drinks cabinet, have not been that impressive of late.

Tia Maria, in particular, has suffered a bad hangover in the six months to February, with volumes down 14 per cent after customers tried its sister brand Tia Lusso and didn't like it.

While Allied's US business seems to be recovering well on sales of Sauza tequila and Maker's Mark bourbon, sales in Latin America and Asia Pacific are struggling. The cost of a bottle of brandy for Mexicans now costs two days' wages, rather than one, as economic weakness spreads across the region. Consumer spending in South Korea has also sobered up.

Allied yesterday tried to win over critics of its wine strategy, which has been to stop selling table wines and plump instead for the more upmarket end of the wine list. This led to a fall in volumes, but turnover has improved and there are signs the business is starting to pick up.

With more than 60 per cent of its earnings coming from the US and other US-dependent currencies, Allied is increasingly a play on the recovering dollar. But this is will take a while to kick in and in the meantime £30m may come off its annual profits this year from foreign exchange hits. Despite this, the company yesterday said it would still meet forecasts. It also proposed a 10 per cent increase in its interim dividend to 5.83p a share, which is more than just a dose of Dutch courage about its future prospects.

Allied shares have had a good run recently, and have recouped the ground lost after its shock profits warning last year, and then some. It is a reasonably safe stock, but earnings growth is not expected to be much more than 5 per cent - hardly enough to pop the champagne corks. At 466p, it is still cheaper than its rival Diageo, but is fast reaching full value. Hold.

McCarthy & Stone built on firm foundations

The "granny count" is going up. This is the measure McCarthy & Stone uses when deciding whether to site one of its blocks of retirement flats in an area and the ageing population means there are more opportunities for expansion than the company can currently meet.

Indeed, the company sold fewer flats in the six months to February than in the same period a year before, blaming planning delays. The average selling price of these 780 units was 16 per cent higher, though, so turnover was up 9 per cent and profits hit £44.1m, up £4.4m.

Another medium-term positive for this company is that the Government, after its review of the housing market by Kate Barker, accepts that the planning process should be speeded up, the key to allowing more homes of all kinds to be built.

One could worry about the impact a slowdown in the housing market might have on McCarthy & Stone's shares. It would certainly hit sentiment across the sector. It would also mean the high margins enjoyed by the builder at the moment will start to contract. However, Keith Lovelock, the chairman, reckons even a 5 per cent fall in house prices will make no difference to the company, since a third of buyers have already sold their houses and most of the rest are trading down after years rattling around the old family home.

McCarthy & Stone shares were up 8p to 577p yesterday, 12 per cent above where we suggested holding last November. They are expensive relative to the housebuilding sector, but this is not unfair given its niche position. They should be a core long-term holding.

Hold on to Laura Ashley while it's in full bloom

There is a fashion revolution underway at Laura Ashley. And it centres on that most unlikely of anarchic things: floral print. Under the aegis of designer Alistair Blair, formerly of Dior and Givenchy, the quintessentially British retailer has finally woken up to the fact it makes sense to play to its strengths.

So Mr Blair has raided the eponymous founder's archives for this summer's winsome collection of summer frocks. Not rocket science, perhaps, but part of the company's quest to reinvigorate itself after years of tumult have practically seen it relegated to the status of Bhs's less fashionable cousin.

Revolutions don't happen overnight and as yesterday's preliminary results show, Mr Blair has got his work cut out. Fashion sales are down 12 per cent on this time last year.

The company, which has retreated from Europe, made pre-tax profits of £3.1m, against £5m of losses the previous year. Its home furnishings arm, which contributes 70 per cent of sales, has continued last year's strong performance so far this year, with underlying sales up 9 per cent. It is focusing on expanding the home ranges into more stores and is to shut or relocate 30 shops.

The shares, down 0.5p to 13.75p, have almost trebled during the past year, and look fully valued. Hold.

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