Greenalls' results set to ferment bid speculation

The week ahead
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The Independent Online
TWO of the stock market's takeover favourites are due to roll out profit figures this week.

Greenalls is probably the most bewhiskered bid candidate of them all; Compass has emerged as the hot tip from the boys in dark glasses in the past few months.

The hotels and pubs chain has been in the takeover spotlight since it arrived on the market in the 1950's. For a long while Greenalls was Britain's biggest regional brewer and, in the corporate ferment which engulfed the beerage in the 1950's and 1960's, seemed destined to fall to one of the takeover marauders.

Indeed it nearly did - several times. Talks at its Warrington headquarters went on through out the night on more than one occasion with door-stepping City hacks awaiting the takeover announcement which never came.

There is little doubt that only a two-tier share structure, with the family retaining control through high voting shares, ensured Greenalls survival.

If Lord Daresbury, the Greenall now running the business, thought ending the group's brewing heritage, dating back to 1762, would relieve the tedium of takeover speculation he was sadly mistaken.

Since retiring from brewing it has frequently felt the heat of bid rumours. Its hotels and extensive pubs chain are seen as ideal targets for growth- hungry brewers. Indeed, one of the more recent stories was that Whitbread was prepared to give up brewing, thereby throwing off the Westminster shackles on its pub ownership, if it could accommodate Greenalls.

And concentrating on retailing, with liberal dashes of distilling and wholesaling, has not provided a smooth ride. Greenalls, which as a brewer and then as a retailer, has been an active predator has been accused of paying too much for some of its pub buys, like JA Devenish.

It also underinvested in its core north-west pubs estate, which left its exposed to pressures from aggressive rivals.

Now it is busy spending to redress its misguided policy and putting increasing emphasis behind its branded concepts such as Miller's Kitchen and Henry's Cafe Bar.

For just three months Greenalls was a Footsie constituent. Membership of the exclusive club coincided with its fall from grace. In a year its shares halved 315p. Signs Lord Daresbury and his team are getting to grips with the problems - plus rumours of bids and the disposal of the upmarket hotel chain - have helped the shares to around 500p. The interim figures will not offer any inspiration. A little changed pounds 64m is likely. With year's profits expected to be up some pounds 10m at pounds 167m the shares will have to continue to rely on hopes of corporate action, now more possible as the protection of the two-tier share structure has been removed.

Compass, the contract caterer, arrived in Footsie in March. It should retain its membership in next month's review.

Bid speculation should help. It is not difficult to find market operators who believe Compass will have great difficulty retaining its independence. Rentokil Initial, the environmental group, has looked closely at the group. It is due, on past form, to make a big acquisition. And contract catering would be a natural expansion.

Intriguingly, Rentokil's Sir Clive Thompson, has said: "One of the benefits of good rumours is that they mostly have some sense in them." He said there was sense in Rentokil looking at Compass and two other rumoured targets. "We will continue to look at these businesses and many others".

In the meantime, Compass, a buyout from the old Grand Metropolitan nine years ago, is continuing to develop its catering muscle although its lower- margin operations present a challenge. Interim profits could be sharply higher, perhaps pounds 75m against pounds 56.4m.

A much changed Bass is another on the reporting schedule. The nation's second-largest brewer, still smarting over losing its number one spot to Scottish & Newcastle, has sold its betting shops, bingo halls and tenanted pubs estate and splashed out pounds 1.8bn on Inter-Continental Hotels.

It also directly returned pounds 850m to shareholders - through a buyback of specially created shares.

Such an upheaval will not produce a distinguished profits gain - around pounds 325m is expected against pounds 318m.

Marks & Spencer is another unlikely to produce a majestic display. Year's profits of the high street supremo will be decidedly pedestrian - say pounds 1.12bn against pounds 1.1bn. Recent trading has been tough with clothing margins squeezed and food sales suffering from increased competition. Overseas profits, previously one of the growth avenues, will be rather dull.

BT will also ring in with little-changed year's results of around pounds 3.2bn.

The nation's two main generators will reflect warmer than expected weather and lower electricity prices. A recent warning from National Power prompted analysts to slash profits forecasts; around pounds 720m against pounds 718m is now expected. PowerGen, which is thought to have been snuggling up to US utility Houston Industries, is due to produce some pounds 600m against pounds 576m.

Carlton Communications' half-year figures will be down, say pounds 145m against pounds 163m. But attention will focus on its British Digital Broadcasting television joint venture with Granada which is due to start later this year.

A BDB investment presentation earlier this month was well received, with the market impressed by expectations the venture will break even with 2 million subscribers and make profits of pounds 250m with 5 million.

Royal & SunAlliance will show storm damage with first-quarter profits of about pounds 130m against pounds 195m; another reporting this week is Imperial Tobacco with interim profits probably little changed at pounds 143m.