Greenalls gathers a potent portfolio

The Investment Column

Greenalls has not put a foot wrong since the Beer Orders of 1989 convinced it that it made more sense to jump on the retail and leisure bandwagon than continue slugging it out with the likes of Bass and Scottish & Newcastle in a declining, oversupplied brewing market.

The acquisition of Devenish, which had reached the same conclusion itself, was followed a year ago by the pounds 600m purchase of Boddington, another ex- brewer whose well-known beer brand is now part of the Whitbread stable.

Full-year figures yesterday for the 12 months to September confirmed that the deal is bedding in nicely and the promised savings of pounds 18m a year are on track. In the short term the return on that investment might not be as exciting as some of Greenalls' smaller rivals can claim from their developments but as a long-term strategic move the deal made abundant sense.

Boddington was such a sizeable acquisition, even for a giant pub group like Greenalls, that the company chose to report two sets of figures. Excluding the newly acquired pubs, underlying profits rose a steady 11 per cent to pounds 111.3m, earnings per share were 10 per cent better at 38.5p and the full-year dividend rose 9 per cent to 15.4p.

Adding in the pounds 47.1m of operating profit Boddington made in the 11 months since acquisition, reported pre-tax profits emerged at pounds 148.7m, a 48 per cent increase.

Greenalls has established itself as the pre-eminent food and drink retailer outside the big integrated brewing and pub groups. From a small, family- run operation at the end of the 1980s it has flirted with FTSE 100 membership this year, a size which has given it considerable clout within the industry. When current beer supply contracts with Bass and Whitbread run out in a couple of years you can bet Scottish Courage will want a slice of the action and buying terms can only improve.

Elsewhere, the company is becoming a serious contender in the buoyant hotel, fitness and leisure market, it runs a portfolio of more than 1,100 tenanted pubs and is one of the country's biggest drinks wholesalers. It is an enviable portfolio.

The disadvantage of Greenalls' size is that it is finding it difficult to grow at anything other than a solid, respectable rate. Forecasts for the current year of pounds 166.5m pre-tax profits and pounds 181m next time mean earnings per share are growing at rather less than 10 per cent a year. In the middle of a strong consumer recovery, that is hardly breathtaking progress and the current market rating is as good as can be expected in the short run. The shares, which closed 10.5p lower at 591.5p, are worth holding, but only on a longer-term view.

DMGT invests

for profits

The owners of the struggling Express Newspapers might learn a lesson or two from the record of the mighty Mail, part of the media empire owned by Daily Mail & General Trust. To make money, you have to invest money.

That maxim appears to be behind DMGT's excellent results in the year to 29 September, when pre-tax profits climbed a healthy 28 per cent to pounds 85.5m, on revenues ahead to pounds 1bn, a rise of 15 per cent.

The crown jewels are the Daily Mail and the Mail on Sunday. Both enjoyed circulation gains, with the daily ahead year-on-year by 13 per cent and the Sunday up 5 per cent. Regional newspapers, grouped under the Northcliffe subsidiary, also performed strongly, posting their highest profit.

The group has not been shy about investing for the future, and shareholders have had to put up with quite pedestrian operating margins as a result. This past year, the margin has been about 7 per cent, which will probably increase to about 10 per cent in 1997 well short of the traditional 15 per cent enjoyed by successful newspapers.

It hardly matters at this stage, given the excellent growth in profits and the aggressive dividend policy that has been in place since 1989. But newspapers are not the whole story. DMGT has made calculated, if contained, investments in a range of media: Cable (Channel One), radio (in Sweden and Australia), electronic publishing and Internet sites. The acquisition and investment strategy appears to be well-rooted in sound principles.

In the medium term, DMGT's prospects look impressive, as it begins to reap the rewards of its aggressive investment policy. Moderating prices for newsprint, down by some 12 per cent since the middle of the year, will either drop straight to the bottom line or be used to enhance the titles yet further.

In time, DMGT will probably reward its shareholders with improving margins, which suggest an even rosier outlook for pre-tax profits. Combined with a relatively light tax rate (thanks to capital allowances), the effect will be to highlight the degree to which the shares are now undervalued.

Expected pre-tax profits of about pounds 120m in the year to September1997 (79.5p a share), rising to pounds 145m in 1998 (96p) put the shares on a forward multiple of just 15. Good value.

All go at

Wainhomes

It has been an eventful year at Wainhomes, the regional housebuilder whose shares were floated at 170p two years ago. The northern subsidiary became embroiled in a pounds 2m fraud inquiry which saw chief executive Ronald Smith sacked after losing the board's confidence in his ability to lead the company.

Mr Smith, who was not involved in the fraud inquiry, is claiming pounds 450,000 for wrongful dismissal and an agreement is expected to be settled with him in the next month. Wainhomes is also pursuing a civil action against contractors. While all this was going on rival housebuilder Bellway took advantage of Wainhomes' weakened share price to pick up a 4.8 per cent stake at 75p-80p a share, against last night's closing price of 103.5p, up 3p.

Unearthing the irregularities prompted Wainhomes to reshape its business, the full benefits of which have yet to come through. In the six months to September, group pre-tax profits fell to pounds 1.75m from pounds 4.25m a year ago on sales of pounds 45.1m (pounds 48.2m). The 1.5p dividend was maintained, covered by earnings of 1.9p (4.5p).

But dependence on the sluggish north-west of England market was reduced from 57 to 50 per cent after Wainhomes paid pounds 24.5m for 2,045 plots in southern England. The average house price rose to pounds 82,582 from pounds 76,123, reflecting larger units sold.

The number of houses sold dropped to 546 (633) as Wainhomes deliberately scaled down its marketing efforts, but reservations in the first 10 weeks since 30 September are "substantially higher" than in the same period last year.

NatWest raised its full-year forecast by pounds 200,000 to pounds 6.5m, implying a price/earnings ratio of 15. Cheap if Bill Ainscough, the new chief executive, delivers on his promise to get return on capital up from 4.4 per cent to 10 per cent within 18 months just by managing the business better.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue