No Pain, No Gain Our Man's Portfolio: Allied seems a permanent guest in the Last Chance saloon

ALLIED DOMECQ has been a Footsie under-achiever since it was created 40 years ago by a merger of three of the leading brewers of the time.

Until early January there were faint signs, not for the first time, that the retailing and spirit group was at last getting its act together. The shares edged ahead, nudging 600p.

But, true to form, Allied once again dashed hopes of a significant revival. A poor trading statement had City analysts scurrying for their calculators as, once again, profit forecasts were pulled back.

About pounds 590m is now expected this year, which would compare with pounds 602m in 1997. Allied management has turned supping in the Last Chance saloon into an art form - it has achieved the impossible, permanent residence.

Other assorted setbacks in past years, ranging from a pounds 147m foreign exchange fiasco to the ill-timed Domecq acquisition, as well as an astonishing inability to grow the business, should have destroyed hopes that Allied will ever emerge as a Footsie pacesetter.

And the group's dismal failure to respond to the creation of the Diageo spirits behemoth merely adds to the catalogue of management shortcomings.

Wise old stock market players are often reluctant to base a longish-term investment on takeover hopes. But Allied must be the exception. It has a fine array of spirit brands (Ballantine and Teacher Scotch whiskies and Beefeater gin) and one of the best pub estates in the country. If ever there was the proverbial sitting duck it is Allied. Indeed, but for the nagging market feeling that such a vulnerable group will eventually be taken out of its misery, the shares would probably be even more depressed.

There is just a chance that the chairman, Sir Christopher Hogg, will roll out a demerger scheme to head off any threatened takeover strike. A strong case has been made for splitting the group into two stand-alone companies, retailing (an assortment of franchise operations and the pubs) and the distilling business. Allied has in the past turned its face against a demerger but there are suspicions that the latest setback and the dismal share price could encourage the plan to be dusted down. Pumping its spirits operations into a similar business would be another form of demerger. A further possibility is a share buyback but such an exercise, I think, rarely has much impact on a share price - ask Halifax shareholders.

Although a demerger would enhance shareholder value it would be unwise to base any share purchase on such a possibility. It would be even more daft to bank on anything spectacular on the trading front. No, the reason for taking a chance on Allied is, quite simply, it will be shocked out of its slumbers by old-fashioned takeover action. Bids of around 650p a share could be expected, against the dismal 482.5p prevailing that now values the group at pounds 5bn.

There is little doubt the Allied parts are worth more than the whole. A break-up strike from a corporate raider or a joint bid with the various parties interested in different parts of the group are possible despite the seeming protection of that pounds 5bn capitalisation.

Allied has another attraction. It offers a 6.2 per cent dividend yield and there is no doubt Sir Christopher would be rather reluctant to cut the payout. At a time of falling interest rates the struggling high yielders are accorded special investment appeal. With the dividend expected to be held the yield offers a handy prop for the shares.

I know that over the years Allied has on many occasions been tipped on recovery and bid hopes. And many commentators have said the sad under- performance must one day end.

They've ended up with egg on their face. I could suffer the same fate. But with the shares so near their 10-year low the Allied under-ferment should be brought to an end.