Small beer is getting stronger

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The Independent Online
AIM-listed Surrey Free Inns may be small beer among pub chains of the scale of JD Wetherspoon or Enterprise Inns, but it has been going consistently in the right direction since it was returned to the black in 1993. Yesterday it took a further significant step in filling out its portfolio with the acquisition of Richardsons Inns and Highnoon for pounds 11.35m in cash, with another pounds 450,000 dependent on the performance of Highnoon.

The deal will be funded through a placing and one-for-eight open offer at 420p, raising pounds 12m net of expenses.

The move will add six inns and two cafe wine bars, including three in the City of London, to SFI's total of 30 sites, which includes the Litten Tree and Bar Med brands. Richardson Inns is a joint venture between the Richardson family and Whitbread, specialising in large, high-volume "superpubs". However, SFI says it has no plans to keep the For Your Eyes Only bar in Park Royal, which features lap-dancing and was due to be joined by a sister operation in the City until the Richardsons thought better of it. Gerald Richardson will join the SFI board and invest pounds 1m in SFI shares.

SFI, which made profits of pounds 1.19m in the year to the end of May last year, yesterday updated its previously reported interim figures, saying profits were pounds 1.56m in the 36 weeks to 9 February. It claimed the acquisition would add pounds 7.5m to sales and pounds 1.5m to profit in the first full year.

Whitbread sold its 4.5 per cent stake in SFI three months ago, but Regent Inns still has a 6.1 per cent stake and has yet to decide on whether to take up the new shares.

Analysts yesterday upped their profits forecast for the current year to pounds 2.2m and to pounds 4.75m for 1997/98, which puts the shares, up 5p at 455p, on just under 16 times forecast earnings. They are no longer cheap, but they look a good each-way bet on a rapidly growing market or alternatively a take-out bid from a bigger, slower rival. The offer shares look worth a punt.