Fizz missing at Boddington

The Investment Column

Boddington's decision to quit brewing after more than 100 years in 1989 has stood it in good stead through the recession. Profits have risen steadily and last year's pounds 30.3m was more than double the level of 1988.

But the market has never really given the company credit for the radical strategy of diluting the remaining pubs operation with businesses ranging from hotels to nursing homes. Yesterday's 11p fall in the shares to 281p took the price back roughly to where it stood two-and-a-half years ago.

Interim profits at the bottom end of expectations were the immediate cause of the latest disappointment. Pre-tax profits, up a mere 2.9 per cent to pounds 13.4m for the six months to 2 July, were only kept moving forward by property gains.

In principle, Boddington has some decent businesses. Pubs, still the biggest, did well to raise first-half trading profits 7.5 per cent to pounds 11.5m in a difficult market. The long-term switch to food in managed, as opposed to tenanted, houses looks soundly based.

Likewise, worries that the group over-paid when it picked up 10 BUPA nursing homes for pounds 27m in December look overdone. Margins have advanced 2 points to more than 25 per cent in the enlarged division, which nearly doubled profits to pounds 3.2m on the back of the acquisitions.

It is less clear, however, where the relatively small drinks wholesaling division is going. Profits there halved to just pounds 1.5m as the group was squeezed between its big brewer suppliers and a sluggish retail market. Cost-cutting and some easing of pricing pressures should see some recovery in the second half, but divisional profits are still likely to end the year pounds 2m shy of 1994.

With gearing up 12 points to 54 per cent in July and unlikely to reduce much in the rest of the year, Boddington's room for further expansion is fairly limited. Alan Smith, newly arrived as chief executive from B&Q, may decide the group is too unfocused in its present state. Until there are signs that he is getting to grips with the portfolio, the shares - now on a prospective multiple of 14, assuming profits of pounds 31m this year - are unlikely to go anywhere.