The Investment Column; The spirits are lagging at Allied

This was a dismal performance from Allied Domecq but the market had been fully briefed and, in the event, investors shrugged off a 24 per cent fall in pre-tax profits from pounds 416m to pounds 317m and the shares fell only 5p to 497p.

That will come as cold comfort, however, to anyone in the stock for any length of time. They have underperformed the market by 20 per cent over the past year, 30 per cent over three and a depressing 40 per cent since 1991.

It is little wonder that investors have pinned so much hope on new chairman Sir Christopher Hogg, the wunderkind of Courtaulds and Reuters and one of the founding fathers of what many see as Allied's best road to salvation, demerger.

For a market obsessed by the mantra of focus, Allied is a totally unacceptable mish-mash of interests, with a portfolio of mainly second-string spirits brands competing for management attention with an illogical, if better placed, retailing side, taking in managed pubs, Victoria Wine off-licences, Baskin Robbins and Dunkin Donuts.

Whether the company has the chutzpah to take the radical steps required to create a rational group, however, is unclear. While Sir Christopher is seen as a catch for Allied, City analysts will tell you privately of their doubts over the quality of the rest of the top management. They are at least on notice that they need to shape up or ship out.

Certainly the group has a patchy record, even disregarding the difficult markets in which it currently trades. It plainly overpaid for Pedro Domecq, the ill-fated Spanish/Mexican drinks business that continues to suffer from high Latin American inflation and the collapse in value of the peso. And it can fairly be questioned for the price it achieved in the recent sale of a clutch of former Lyons food businesses.

The challenges facing Allied are rather more simple to enumerate than to overcome. It must try and push through price rises in the spirits arm where a 1 per cent improvement would add pounds 27m to trading profits; it must focus on its leading brands - Ballantine, Kahlua, Beefeater and Sauza; it must make inroads into the pounds 350m of its cost base over which it has some control; finally it must bring to fruition the long overdue exit from the Carlsberg Tetley brewing venture.

Looking further ahead, though, shareholder value is only likely to be created by focusing on what it is good at, retailing, and getting shot of the spirits arm it is struggling to make a success of. On the basis of some analysts calculations such a deal might put a value of maybe 670p on the shares.

In the meantime, forecasts of about pounds 604m in the year to August and pounds 689m next time put the shares on a prospective price/earnings ratio of 14 falling to 12. With a same again 24p dividend likely, the shares yield 6 per cent, which puts a solid floor under the price. Good value.

Suggested Topics
PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
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

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker