The Investment Column: Drinks group well served

WHO said a leopard cannot change its spots? In an incredible six months Bass has done just that. A burst of corporate activity has seen the group sell pounds 1.2bn worth of assets, including its Coral betting chain, Gala bingo and its tenanted pub estate. In turn it has spent pounds 1.8bn buying the Inter-Continental hotel chain and given pounds 801m back to shareholders. Bass may have had more than its fair share of luck in completing so many deals in such a short time, but that does not detract from a strategy well-timed and well-executed.

This wheeling and dealing has made a nonsense of comparing last year's earnings with this. But ignoring all the exceptionals, underlying profits at the businesses it has got left rose 10 per cent.

But even after the radical restructuring, Bass cannot afford to rest on its laurels. Consumer demand in the UK and US is already showing signs of flagging. And in a beer industry that is seemingly in a never-ending decline, Bass has to run hard just to stand still.

That said, Bass highlighted the pattern that has emerged during the drinks results season that the industry heavyweights are performing much better than the regional players.

Relief that Bass had managed to secure the Inter-Continental deal caused its shares to rise sharply earlier this year, although, along with the rest of the sector, the shares have come off in recent weeks over fears that poor Easter weather would dent publicans' profits.

Bass's shares rose 17p to 1087p yesterday. On analysts' current-year profit forecasts of pounds 700m, which put the shares on a prospective PE ratio of 17, Bass is now trading on around a 10 per cent discount to the market. In the short-term, the upside in the share price looks limited. But Inter- Continental is a great buy and Bass's vast pounds 800m capital expenditure programme should keep it among the top industry performers. Solid long-term value.

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