This stout still has clout

Trading conditions may be tough, but Guinness's brands and ads make it excellent value

The recent fuss over a leaked Lazards report analysing the implications of a Guinness bid for Grand Metropolitan overlooked the fact that these exercises are an essential part of good management.

Guinness's swift and firm denial confirmed two points. First, that Guinness will only look to a deal where the numbers stack up and shareholders can be assured of solid gains. Secondly, and given the difficulty of finding such a deal, Tony Greener, the chairman, and his team remain committed to organic growth - a message he has assiduously conveyed to institutions and analysts in the past few months.

That is reassuring for investors who have had to endure a low level of growth in recent years that has left the shares in the doldrums. The shares have, in effect, been suffering from the hangover after the party. The City had cranked up expectations for the group to unrealistic heights, driving the shares to a peak of 629p in 1992. Tougher and more increasingly competitive trading conditions demanded a correction that was delivered in no uncertain terms.

Profits have only inched ahead in recent years. Indeed, pre-tax profits in 1995 of pounds 876m were lower than the pounds 900m the group raked in in 1991.

But there are success stories aplenty within the group. Johnnie Walker Red and Black Label have had an astonishing run of success and have been the motor for much of the spirits arm's success. Last year, it sold a record 11.2 million cases of the stuff, to make it the world's biggest spirits brand as measured by retail sales - and 20 per cent ahead of its nearest competitor. Sales of spirits to emerging markets now account for 40 per cent of group spirit sales.

But the group is frank about the difficulties besetting the international spirits market. While emerging markets have come on strongly, other, once favoured markets have gone into reverse. Exports of costly up-market brands to Japan have been savaged by that country's economic crunch. Sales in Australia have also been difficult, although some of the slack has been offset by increased uptake in Thailand and Taiwan, where Johnnie Walker has achieved a compelling lead over its rivals.

Overall, the market for spirits remains in reasonable health. But there is precious little evidence of any strong recovery in volumes and prices, which remain under the cosh in the present disinflationary era. And while consumers become ever-more price-conscious, health faddism has eroded some of the company's strengths in its more traditional markets. Guinness's strength is its ability to outperform its competitors through good marketing and clever re-balancing of its portfolio to improve margins.

In brewing - principal product, the world-renowned stout - a similar story emerges. While there have been some success stories in emerging markets, progress in sales of stout has been slow and steady rather than spectacular. At Cruzcampo, its Spanish brewer, initial problems have been sorted out, but the company now has to suffer Spain's enfeebled economy, where unemployment is running at over 20 per cent.

Overall, however, the Guinness brand portfolio, stuffed to the gunnels with good things, remains the envy of its rivals. As well as Johnnie Walker, it boasts Gordon's and Tanqueray gin, Bell's and Dewar's White Label whiskies - and the eponymous Guinness. Even with pricing pressures, Guinness still outperforms much of the competition. In 1995, its brands grew 0.5 per cent worldwide, compared with a 1.2 per cent fall for the top 100 brands, according to figures from market research group Impact International.

For organic growth, read marketing, where Guinness is working hard on new ways to promote its drinks. Unlike other brewers, Guinness turned its lack of a freehold estate to its advantage. In partnership with other landlords, it devised and backed the successful Guinness Irish pub concept. Over 950 of these have opened around the world in places as far afield as Iceland and Abu Dhabi as well as across continental Europe.

So is the glass half full, or half empty? With a company like Guinness, long-term prospects have to be seen as excellent. As well as brand quality, a strong balance sheet is supported by tremendous cash flow. Last year, the group reduced borrowings by pounds 184m, to pounds 1.23bn, with free cash flow of pounds 484m. That financial strength gives the group all the confidence that it needs to keep all its options wide open.

At present, however, the shares offer excellent value. Having seriously underperformed the market, the froth has evaporated. What is left is a share on an above-average yield that is flinging off cash. If you want short-term excitement, the party is over. But as a steady performer, the shares will prove a sensible choice for your money.

Guinness

Share price 470p

Prospective p/e 13.9

Gross dividend yield 4.0%

Year to 31 Dec 1994 1995 1996* 1997*

Turnover pounds 4.69bn pounds 4.68bn pounds 4.802bn pounds 5.008bn Pre-tax profits pounds 1.045bn pounds 990m pounds 963m pounds 1.032bn

Earnings per share 31.6p 32.9p 33.7p 36.5p Dividend per share 13.8p 14.9p 16.4p 18.0p

*NatWest Securities forecasts

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
Sport
Jonas Gutierrez (r) competes with Yaya Toure (l)
football

Newcastle winger is in Argentina having chemotherapy

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'
film

Actors star in Woody Allen's 'Magic in the Moonlight'

PROMOTED VIDEO
News
peopleThe Times of India said actress should treat it as a 'compliment'
News
news

Watch this commuter wage a one-man war against the Circle Line
News
We are phenomenally good at recognising faces; the study showed that humans have been selected to be unique and easily recognisable
science

Human faces unique 'because we don't recognise each other by smell'

Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show?
Property
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
News
A male driver reverses his Vauxhall Astra from a tow truck
news

Man's attempt to avoid being impounded heavily criticised

Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Student
The Guildhall School of Music and Drama is to offer a BA degree in Performance and Creative Enterprise
student

Arts and Entertainment
Emma Thompson and Bryn Terfel are bringing Sweeney Todd: The Demon Barber of Fleet Street to the London Coliseum
theatre

Returning to the stage after 20 years makes actress feel 'nauseous'

Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
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

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week