Investment Column: Clark still has much to prove

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The Independent Online
Matthew Clark seems to have had too many plates in the air last year, at least as far as the City is concerned. While investors' attention was diverted by the pounds 275m acquisition of Taunton Cider, which doubled the size of the group, few were watching what was happening in the drinks wholesaling business. News yesterday that profits at the Freetraders offshoot, the UK's biggest drinks wholesaler, halved last year to pounds 2.7m wrongfooted the City.

But the main problem with Clark as far as the market is concerned is its continuing devotion to an unfashionable acquisition-led strategy. The group has spent at least pounds 470m over the last three years on brands and businesses ranging from Gaymers, the cider maker, to wine group Grants of St James. That makes yesterday's figures hard to interpret. Reported losses of pounds 11.3m were replaced by profits of pounds 17.2m in the year to April, but stripping out a swathe of exceptional items and disposal losses, underlying profits rose from pounds 21.4m to pounds 42.3m, including acquisitions.

Clark will have to use this year to convince investors it can successfully grow its new businesses. Thus far, rationalisation is costing more than expected. It spent pounds 15.2m last year on sorting out Gaymer and Taunton and pounds 9.9m on Freetraders. Cost savings in the cider business should accelerate from pounds 9m last year to pounds 13m in 1996-97, but Clark also needs to show that it can build brands.

The distractions of the bid meant that Clark lost market share in cider and it remains to be seen whether its promotion-led marketing strategy can hold its own against bigger rivals Bulmer. Meanwhile, doubts will remain about Freetraders.

Clark has seen discounts on beer narrow sharply as the big brewers punish the independents who are encroaching on their traditional distribution business. Its two biggest customers alone cost pounds 3.35m last year. Cost savings will offset most of that in the current year and a wholesale clear- out of Freetraders' management should sharpen its approach.

Long term, Clark is well positioned in high growth areas of the drinks market, but it still has something to prove. Profits of pounds 71m this year would put the shares, down 17p at 743p, on a forward multiple of 14. Hold.