The Investment Column: Waiting for Bass to bait its hook

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The Independent Online
Sir Ian Prosser has the look of a man who is enjoying his new- found place in the limelight. Having been the sector's ugly duckling, Bass has emerged as the City's favourite predator and has been linked with a bewildering array of drinks and leisure businesses, most recently Carlsberg/Tetley and William Hill.

Bass has other reasons for smugness. With the exception of its leisure businesses which, like everyone else's in the industry, has been hit hard by the lottery, Bass's wide spread of hotels, brewing, pubs and soft drinks operations all seem to be moving in the right direction. Pre-tax profits of pounds 289m were 10 per cent up on the first half of last year and nicely above expectations.

The company took a pasting in the City when it bought Holiday Inn in 1989 but the move now seems prescient. The hotel industry is enjoying an upturn and its target of 3,000 mainly franchised sites by 1999 looks very achievable.

Managed pubs are growing apace and 100 branded outlets are planned for the second-half, after 70 openings in the first. The proportion of food sales increased well and there was a big increase in the contribution from high margin, premium beers which helped operating profits rise 23 per cent.

Elsewhere, brewing did well to squeeze a 9 per cent underlying profit rise out of a 1.5 per cent rise in UK beer volumes. Leisure, which takes in Coral betting shops, Gala bingo halls and bowling alleys, pleasantly surprised analysts with a 17 per cent fall after a 30 per cent first-quarter shortfall.

Bass is financially strong, has an unrivalled spread of leisure assets and throws off enough cash to fund an ambitious pounds 600m capital expenditure program and then some. On the basis of profits this year of pounds 667m and pounds 745m next time, the shares at 788p, up 20p, stand at a 10 per cent premium to the market, about the same as Whitbread and Scottish & Newcastle. It is worth it. Good value.