THE INVESTMENT COLUMN: W&D goes for a sexy image

Wolverhampton & Dudley is still trying to shake off its dull regional brewer mantle for something more sexy. The group isbelatedly following faster-moving leaders such as JD Wetherspoon into the concept pub - branded houses serving food which target specific types of customer. W&D's managing director, David Thompson, says the group has five proven pub styles including Taverns, which target the well-to-do and retired customer, Taphouses for young people who like loud music, and Purchasepocket, for lower-income families and "which serve the best chips in England". Mr Thompson is right to believe that branding is the way forward, but the transition has meant heavy investment costs with returns yet to come through.

The first-half figures reflect these higher costs. Trading profit for the six months to 30 March rose just 9 per cent to pounds 21.3m with lower margins reflecting substantial increases in spending on marketing, advertising, refurbishment of 98 pubs and staff costs. In the period the group built four pubs, bought a further 19, bought 13 sites for development and opened 18 concept pubs, bringing the total to 107. However, trading was mixed with town-centre and food-led pubs performing well but overall like-for- like sales modest.

Though consumer confidence remains fragile, W&D has increased its market share, with total beer and cider volumes rising by more than 8 per cent. This helped sales rise 13 per cent to pounds 133m in the period, further boosted by expansion of the group's tied estate, extension of the concept formats and greater distribution of brands to wholesale customers.

Prospects for the second half look more lively. With spending on marketing and refurbishment lower and a 5p increase in a pint of beer which came into effect on 1 May, margins should rise. However, there are less controllable concerns. If the Bass/Carlsberg-Tetley merger goes through, W&D will face a rival with 40 per cent of the UK brewing market. And there are younger, more aggressively branded pub operators around these days.

Hoare Govett forecasts pounds 47m profits for the full year. With W&D's share price unchanged at 646.5p, a forward p/e ratio of 13 looks reasonable.