The Investment Column: Marston's forecasts a sunnier year after the gloom of 2007

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The Independent Online

Our view: Hold for now

Share price: 196.25p (-9.75p)

When you consider that the last 12 months have witnessed the introduction of the smoking ban in England, grim summer weather, a financial crisis and a bigger-than-expected increase on the duty on alcohol, you would be right to conclude that it has been a pretty poor year for breweries.

Despite the problems, the brewer and pub outfit Marston's, which produces drinks such as Pedigree bitter, has not done too badly. In its trading update yesterday, it said that its expectations for the whole year remain on track; sales grew by 0.3 per cent in the 24 weeks to 15 March, despite a slower start to 2008.

After a challenging 12 months, the group's chief executive, Ralph Findlay, thinks the sector may have turned a corner. "We see the second half of this year being a bit easier," he says. "We have the anniversary of the smoking ban and hopefully we'll have better weather. It should make comparisons easier."

Analysts at Altium Securities say that "overall, the first quarter has been tough, although pretty much as expected, as we believe these are the worst months of the smoking ban impact".

By Mr Findlay's own admission, the firm's pubs offer food at the cheaper end of the market, at around £6 or £7 a person. But he reckons that this will insulate the group from the harsher effects of the credit crisis. Alternatively, you could argue that the people buying these meals are the ones likely to tighten their belts first.

Food is vital for the company, accounting for 65 per cent of sales. Food sales grew by 7.8 per cent last year, with drink and slot machine sales down by 3.1 per cent and 10.3 per cent respectively.

Marston's shares have toiled more than most in the sector since trading up in the 470s last May. Watchers at Dresdner Kleinwort "question why [Marston's] has underperformed the pub sector by 18 per cent," and suggests that a "small relief bounce looks likely".

However, the sun can shine all it likes, but if the economic crisis continues to shake consumer confidence, drinkers and diners are going to choose to stay at home rather than spend the evening in a Marston's pub. Hold for now.



Scottish Media Group

Our view: Cautious hold

Share price: 11.5p (-0.25p)

For fans of the television detective series Taggart, some good news: Scottish Television, owned by Scottish Media Group, has won the biggest ever commission to produce new episodes of the show.

Sadly for investors the news is not so good: the group does not envisage paying a dividend any time soon, after posting numbers yesterday showing operating profit down to £700,000 from £6.7m in 2006. And given that the company's shares have fallen from nearly 84p in May 2006 to their present level, investors would be forgiven for assuming that buying SMG stock is nothing but folly.

In the short term they would be right. However, the firm is making progress, and for those prepared to sweat it out, a longer-term punt might be worthwhile. According to the firm's finance director, George Watt, the company cut its debt by £110m last year, and refinanced its outstanding £47m of debt on better terms with bankers at HBOS.

Firms are cutting back on their national marketing budgets, but increasing their spending on local markets. While national TV advertising has fallen by 2 per cent so far this year, regional marketing is up 14 per cent, and according to the group, this will continue to grow at double-digit rates through April and May. SMG relies on local marketing for 20 per cent of its revenues and that should grow.

There are other bits of good news too. The firm has a long-term commitment to sell Virgin Radio, but with its heavy debt burden now relieved, the group stresses that it is not a forced seller. Absolute Radio is said to be the preferred bidder for about £65m.

SMG is in transition and is making small steps. It has a long way to go, and investors probably need a bit more reassurance before buying. Cautious hold.



Ambrian Capital

Our view: Hold

Share price: 39.5p(unchanged)

Ambrian Capital's share price has bombed in the last 12 months. After reaching 85.25p last May, just before the onset of the credit crunch, the stock has dived. But the softly spoken chief executive, Tom Gaffney, reckons that the group is a victim of the general malaise around the financial services sector, and for investors prepared to look at the group a little bit harder, there is a bargain to be had.

The firm is undergoing a transformation, which it hopes will result in the company being viewed as an investment bank rather than as a fund manager. While the whole firm's revenues were down more than £2m to £15.8m in the past year, the investment banking division saw an improvement of 26 per cent in turnover. There is genuine progress being made with the firm's changes, but investors may be wise to avoid all financial services shares for the time being. Hold.

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