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No Pain, No Gain - Our Man's Portfolio: There's action down the pub

SHARES WITH Internet or telecom connections are making the running, overshadowing the more traditional areas of the investment scene.

There have, however, been recent signs that some of the more neglected sectors are coming back into fashion. Engineers have staged a modest recovery; so have retailers.

Leisure shares, devastated as consumers lost the spending habit, are also displaying much more confidence than they were a few months ago.

They have been helped by clear evidence that the spending squeeze is over as well as indications that they should be big beneficiaries of the millennium excitement.

In one leisure area - pubs - there has been memorable takeover activity, and more action looms. Yet, by and large, pub shares are not reflecting the consolidation bandwagon that is rolling through the industry.

Action so far this year has included Enterprise Inns' dramatic takeover of smaller rival Century Inns and its abandoned bid for Inn Business.

But, of course, the major event is the proposed Allied Domecq sale of its pubs estate to Whitbread, thereby creating the biggest chain in the land.

Whether the unquoted Punch Taverns, born out of the old Bass-tenanted estate, will upset the deal remains to be seen.

The signalled Punch interest in Allied's pubs portfolio is yet the latest evidence of the merger ferment that is engulfing what is, in stock market terms, a relatively new industry.

The pubs sector emerged from the Conservative government's ill-conceived Beer Orders, which forced the major brewers to dump about 11,000 of their outlets. The plan to dilute the retail power of the big brewing groups has backfired, merely exchanging the dominance of those brewers for a similar degree of power held by a handful of pub operators.

With a few exceptions, it is a case of the bigger the pub chain the greater the strength. In any pubs merger there is an immediate saving in administration costs, and the increased buying power allows the squeeze on suppliers to be increased.

Ted Tuppen, of Enterprise Inns, has got the exercise down to a fine art. His chain has grown from 500 to more than 2,200 and he is among the bidders for parts of the Swallow estate.

Pubs are already well represented in my fledgling portfolio. Two pub chains, Allied tipped at 482.5p and now 539p, and Paramount, 15p now 22p, are among the six constituents.

However it is worth drawing attention to three companies where possible action looms.

The Slug & Lettuce chain has failed to roll out much in the way of profit excitement but it has a trendy concept and the shares seem unduly weak at 160.5p against 302p last year. A strike looks a distinct possibility.

And Regent Inns must be looking over its shoulder at the way institutional investors dumped unsuspecting Century Inns into the Enterprise taproom. Fund managers were so upset by Century's pedestrian performance that they ganged up and delivered the company to a grateful Enterprise.

Regent, which largely under the influence of a profits warning crashed from 388.5p to 100p, is a big disappointment for the institutions, although the ultimately unsuccessful talks with SFI boosted the shares to 196p. It must be wondering whether its institutional support will remain loyal, particularly in view of SFI's interest.

Finally, Cafe Inns at 170p: it is thought to be a target for Burtonwood Brewery which, despite its name, is now largely a pubs group.