Courage gives S&N a boost

The Investment Column

With the beer industry braced for an imminent OFT decision on the proposed takeover of Carlsberg-Tetley by Bass, Scottish & Newcastle yesterday kicked off a busy week for Britain's brewers with a better- than-expected set of half-year figures.

Pre-tax profits were 26 per cent higher at pounds 195m, helped by a full six- month contribution from last year's Courage deal. But what impressed the market most was S&N's ability to grow earnings per share by 18 per cent in a year when one of its main businesses - Center Parcs - again turned in a poor performance. Profits there were down pounds 5m, hit by the economic problems of northern Europe as well as one-off costs in the Benelux countries and pounds 1m of redundancy charges.

S&N chief executive Brian Stewart denies that Center Parcs is a concept that has peaked and points to UK occupancy rates of 91 per cent and rising spend per head figures both in the UK and Europe. However, speculation continues that the business may be sold, although a float of the continental Center Parcs is another possibility

The division which wrong-footed analysts was brewing, where the re-named Scottish Courage business improved profits by a better-than-expected 67 per cent to pounds 90m. S&N has been building margins rather than chasing sales with its stable of brands, which include Theakston's, John Smith's and McEwan's. Some pounds 18m of costs have been taken out so far, with pounds 45m planned for the full year.

With the economy improving in the south of England faster than in the north, management admits these results would not have looked as good without the Courage deal.

In retailing, S&N lags behind Whitbread in the development of themed pubs and restaurants. However, it is starting to motor with 35 Chef & Brewer pub-restaurants planned for this year and an eventual target of 150. Another format earmarked for roll-out is Barras & Co, the community pub brand started earlier his year.

With a forward price-earnings of 14, assuming full-year profits hit pounds 380m, S&N shares are trading at a discount to rivals such as Whitbread and Bass, the latter of which reports later this week. S&N shares jumped 22p to 661p yesterday and would rise further if management can demonstrate that Center Parcs is on the mend. A strong hold.

Ascot head is worth backing

Ascot Holdings' pedigree is hardly of the sort to inspire confidence. Better known in its old guise as Control Securities, the one-time pubs to hotels group was formerly the vehicle of disgraced businessman Nazmu Virani. Not content with its own colourful past, this summer Ascot paid pounds 290m for Suter, the mini-conglomerate whose name is synonymous with that of its controversial chairman, David Abell.

But if anyone is going to help Ascot escape its history, it is chairman and chief executive Howard Dyer, who is credited with turning round Hamleys, the toyshop group.

Mr Dyer is busy turning Ascot on its head, so yesterday's interim results showing pre-tax profits sliding from pounds 8.8m to pounds 1.2m in the six months to September are pretty meaningless as a guide to the future. The figures reflect a divestment programme which has seen the group raise over pounds 200m from disposals since Mr Dyer's arrival in 1991. He expects to raise close to pounds 40m more over the next two years from selling most of the former Control assets of pubs and other properties.

That will all be needed, as gearing has soared to 244 per cent since the Suter acquisition. But Mr Dyer is confident of paying that down easily within a two- to three-year timetable mainly through the disposal of two of Suter's four divisions.

Specialist engineering will definitely be kept. The Searle refrigeration equipment business and Floform spark plug electrode operations both have strong market shares. Chemicals also looks safe. That leaves the automotive arm and a rag-bag ranging from drills to beauty care mostly likely to be on the block early next year.

Profits of pounds 28m next year, assuming no Suter disposals, would put the shares, up 1.5p at 326.5p, on a forward p/e ratio of 14. Worth backing the man, even if it may be a while before a clear picture of the business emerges.

BTG's patent potential

Shares in BTG, the old British Technology Group, have been among the best performers on the stock market in the last year, rising from a low of 700p to last night's pounds 24.375p.

Ownership of potentially lucrative patents lies behind the shares rise. BTG patents whacky inventions and licenses the intellectual property rights to big groups like Zeneca and SmithKline Beecham and biotech companies, including Peptide Therapeutics, and earns royalties in return.

BTG owns over 9,000 patents but the most exciting prospect is Torotrak, a fuel-saving variable transmission system developed in-house and licensed to nine vehicle manufacturers, including Ford and Toyota.

Ultimately Torotrak could replace cars' gearbox system, making for a lighter, more fuel efficient system with fewer moving parts.

Japanese investment bank Yamaichi reckons Torotrak could be worth up to pounds 1bn, compared with BTG's current market value of pounds 427m.

In the meantime, a final payment estimated at pounds 2m for BTG's Pyrethrin crop protection insecticide allowed the group to post interim pre-tax profits of pounds 170,000 versus a pounds 2.1m loss a year ago, though BTG is cautious about whether it will remain in the black for the full year.

A proposed one-for-five share split should improve marketability. Yamaichi's estimated net present value ranges from pounds 400m to pounds 3bn, implying a share price potential of up to pounds 170. Interesting, but speculative.

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