The Beefeater gin-to-Firkin-pubs company saw profits fall by 9 per cent to pounds 292m in the six months to 28 February, largely because of much lower profits at its estate of managed pubs.
Profits at the pubs, including the Mr Q, Big Steak and Wacky Warehouse brands, sank by pounds 10m to pounds 70m - the first profits fall at the group's retail division. Executives blamed the cost of Sky TV showings, the minimum wage and beer supply prices.
Last year the group shocked the City with a profits warning on drinks sales over Christmas, causing shares to fall by 10 per cent. Since then the board has been under pressure to take decisive action such as a de- merger of its spirits division.
Yesterday Tony Hales, chief executive, held open that possibility. But executives indicated it was unlikely in the near future. For now the strategy is to focus on promoting four key drinks brands - Ballantine's, Kahlua, Beefeater and Sauza.
Mr Hales said the group had decided not to increase its capital investment in the pubs because returns were too low. The whole pub industry spent pounds 1bn investing in pubs last year, twice as much as four years ago, but demand was flat.
A weak financial position has been shored up by the January sale of its Cantrell & Cochrane division for pounds 519m. Executives have also started changes to the Firkin pubs - ditching terms like "Firkin Ladies" in favour of improving the food.
Nick Popham of Teather & Greenwood forecasts earnings of pounds 580m for the full year, or earnings per share of 40p, leaving Allied Domecq on a modest forward multiple of 12 times. With a lot of bad news built in to yesterday's price, and a possible break-up value of 585p, now is the time to buy.