Courage is good for S&N

The Investment Column
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Whether it was luck or good timing, Scottish & Newcastle did extremely well to slip under the wire with last year's Courage acquisition.

A year on, Bass would appear to be having the devil's own job in persuading the regulatory authorities to let it get its hands on Carlsberg-Tetley and so regain pole position in the UK brewing market.

Figures yesterday were the first concrete evidence of the benefits of the Courage deal and they confirmed it was earnings enhancing, good for cashflow and helpful for the enlarged group's return on capital employed. Bass's Ian Prosser must be spitting tacks he didn't get there first.

Profits before tax and the pounds 150m one-off cost of integrating Courage were bang in line with expectations at pounds 308.2m, a 16 per cent improvement on the year to April 1995. Earnings per share increased by 8 per cent to 39p and an 8.5 per cent rise in the final dividend to 12.9p gave a full-year total of 19.4p, also up by a little over 8 per cent.

One of the most encouraging features was the extent to which profits in the core brewing business accelerated in the second half of the year.

Excluding Courage, which chipped in pounds 36.7m in 37 weeks, profits from the McEwans, Theakstons and Newcastle Brown arm rose 3.3 per cent overall during the year but more than 9 per cent in the second six-month period.

Profits benefited from growing volumes, increasing demand for premium lagers and ales and an apparent stabilisation in the relentless rise in discounts demanded of brewers by their newly powerful customers. There were pounds 9m of savings from the Courage deal, in line with forecasts, and a total of perhaps pounds 45m are expected in the current year.

The retail side also did well, with a seemingly sharp fall in profits from tenanted pubs more than accounted for by the reduction in outlets demanded as a quid pro quo for allowing the Courage acquisition.

Managed pubs, the dominant profit-earner, saw profits jump 16 per cent as the company benefited from an impressive return on its pounds 88m investment programme.

S&N is not without its problems and the Center Parcs and Pontin's leisure arm, which has been a nice little profit earner over the years, came in even lower than pretty subdued expectations.

Mr Stewart appeared determined to make a go of this arm yesterday, and with a 20 per cent return on sales it is hardly a disaster, but it is not wholly apparent where the synergies with the rest of the business lie.

Profits of about pounds 370m this year, with a full year's benefit from Courage, would put the shares, up 4p to 663p, on a prospective p/e of 15. Compared with a forecast growth rate of about 17 per cent that is pretty fair value.