Sell while shares are frothy

SHARES in wines, spirits and retailing giant Allied Domecq - one of the worst blue-chip performers in recent years - enjoyed a rare place in the sun last week.

They bounced off a five-year low on reports that rival brewer Bass was in talks to buy its interest in Carlsberg-Tetley, the brewing joint venture it set up in 1993 with Carlsberg.

A year ago, this column noted similar moves were afoot to sell the 50 per cent stake, possibly to Whitbread, saying: "This would be a historic deal, for it would mark Allied's departure from UK brewing - its original business - and show how marketing-led chief executive Tony Hales is transforming the group's philosophy."

Extracting itself from the unhappy Carlsberg-Tetley experience is clearly proving tricky for Allied Domecq. Whitbread has walked away, while Carlsberg's right of first refusal to the other half of the joint venture only complicates negotiations.

Regulatory issues aside - the combined market share of Bass and Carlsberg- Tetley would be close to 40 per cent - the main sticking point is likely to be price.

Analysts are sharply divided about how much Allied's stake is worth. Estimates range from pounds 150m to pounds 500m depending on whether lucrative supply contracts to Allied's 4,000-plus pubs, which end in 1997, are renewed.

Carlsberg-Tetley is Allied's biggest problem child. Volumes and margins are under pressure, and the group recently announced 500 redundancies. Any move that frees management time at Allied and reduces uncertainty ought to get a positive response from investors as long as the price is high enough.

Selling the Carlsberg-Tetley stake would also help bolster the balance sheet. Debts of pounds 1.7bn represent a chunky 70 per cent of shareholders' funds though, unlike rival drinks group Grand Met, conservative Allied does not include brand values on its balance sheet.

With Allied all but out of brewing and food manufacturing, the big question remains of how to make the remaining assets work harder.

Nobody doubts that Allied has a strong brand portfolio. The spirits division, which takes in Teacher's whisky and Beefeater gin, ranks as number two in the world when measured by sales volume of the top 100 brands, while retailing includes 1,500 Victoria Wine off-licences, more than 8,200 Baskin Robbins and Dunkin Donuts franchised stores, and themed pub-concepts such as Firkins and Scruffy Murphy's.

But trading is tough and an unexpected slump in spirits sales means interim profits in May will be down by around a fifth.

The recent profits warning, the second in seven months, showed once again that size alone is not enough to ensure value is unlocked for shareholders. It also raised further doubts about the industrial logic of combining an international branded spirits business with a UK pubs operation.

Sadly, Allied Domecq declines to comment on these issues. Such reticence may have something to do with arrival next month of highly respected Sir Christopher Hogg to replace Michael Jackaman as chairman.

Sir Christopher, no stranger himself to resuscitating stretcher cases, is likely to conduct a strategic review that may reach the same conclusion as the ABN-Amro Hoare Govett analyst, Julie Bower, that Allied "has the potential to be a much stronger retailer than a spirits marketer". Allied could be worth almost 700p a share on that basis.

It would be no surprise if Allied chose to go down the break-up route. After all, it has been a dedicated follower of the latest business fashion for many years, as a former, well-placed employee recalls. "Allied was always number two or three and tended to follow what the market leaders were doing. Senior management simply wasn't good enough."

But Allied has also danced to the City's tune too often - and to no avail. In the rush to focus on just two divisions, trophy assets such as Tetley tea bags were sold for too little while pounds 739m was surely too much to pay for Domecq.

For this reason alone, Sir Christopher may do well to resist pressure to go the whole hog (no pun intended) and split Allied in two.

Instead, his first task may be the onerous one of cutting the thinly covered dividend. Broker UBS remains negative on the shares, noting that they stand on a 6 per cent premium to the market but offer weaker underlying profits growth in spirits than either Grand Met or Guinness.

Selling them on the back of recent strength looks the best option until the big picture becomes clearer.

Allied Domecq

Activities: Wines and spirits (Lamb's, Beefeater, Teacher's, Cockburn's, Harveys, Courvosier); retailing (Victoria Wine, Dunkin' Donuts, Baskin Robbins, Scruffy Murphy's, Firkin, Ind Coupe, Taylor Walker, Ansell, Tetley); brewing and wholesaling (Carlsberg, Tetley, Castlemaine XXXX, Skol).

Share price 508p

Prospective p/e 15

Prospective gross yield 6.2%

Dividend cover 1.4x

Year to August 1994 1995 1996* 1997*

Turnover pounds 5.62bn pounds 6.05bn N/A N/A

Pre-tax profits pounds 635m pounds 635m pounds 600m pounds 620m

Earnings p/share 38.2p 37.7p 34.7p 35.7p

Dividend p/share 22.7p 27.6p 25.0p 26.0p

* UBS estimates

Suggested Topics
PROMOTED VIDEO
News
Wayne’s estate faces a claim for alleged copyright breaches
John Wayne's heirs duke it out with university over use of the late film star's nickname
News
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
News
business
News
Mick Jagger performing at Glastonbury
people
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Sport
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Solutions Consultant (financial services)

£50000 - £65000 per annum: Harrington Starr: SQL Solutions Consultant (financi...

Implementation Consultant - Business Analyst, SQL

£50000 - £70000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...

Application Support - Unix, Linux, Windows, Bash, Perl, Python

£55000 per annum: Harrington Starr: An established leader in the Trading Syste...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil