The Investment Column: Vaux profits fall flat

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The Independent Online
SUNDERLAND may be vying for promotion back to the Premier League but Vaux, the brewing to hotels group that sponsors them, has produced a decidedly second division performance in recent years. As the table and graph opposite shows, the group's lacklustre profits growth has seen its shares underperform the market by almost 50 per cent since 1993.

Vaux, like all the regional brewers, has struggled to cope with the decline in beer sales and the growth in market share that the large brewers have managed to secure by pouring huge amounts of money behind their leading brands.

The big rivals have also been able to turn the screw on Vaux's managed- pub profits by investing billions of pounds in their own chains at the expense of the traditional local. Vaux's own efforts to develop pub brands have been meagre by comparison. The stark contrast between the 15 per cent rise in pub profits which Whitbread announced earlier this month and the flat profits Vaux achieved tells its own story.

Vaux has been able to seek solace at its hotels division. Its Swallow Hotels business, already a well-run operation, has grown rapidly thanks to the upturn in the hotels cycle. But Vaux cannot rely on hotels for ever. That particular market is already showing some signs of flattening out.

Vaux's underlying pre-tax profits for the six months to March rose 8 per cent to pounds 16.6m, but the overriding impression from the group's results presentation yesterday was that it will have to run increasingly hard to stand still.

The imminent appointment of a new chief executive could help reform this family-run group and revitalise the possibility of a break-up. But, with one half of the business obviously struggling, even that is not the attractive prospect it once was.

Vaux's shares slipped another 3p to 267.5p yesterday. ABN Amro Hoare Govett forecasts current-year profits of pounds 40.1m, putting the shares on a prospective price-earnings ratio of 12. Despite trading on a large discount to the market Vaux still looks high enough.