View from City Road: Boddington's odd mix works

THE MESSAGE that Boddington Group, chaired by Denis Cassidy, has spent the best part of five years trying to get across to investors has finally been rammed home. Yes, it was wise to exit from brewing in the Eighties, and, yes, the seemingly esoteric mix of pubs and healthcare does work.

Yesterday's announcement of a 30 per cent rise in 1992 pre-tax profits to pounds 26.3m made even the optimists look cautious. Forecasts for 1993 were upgraded.

A particularly remarkable achievement was the 9.7 per cent increase to pounds 20.2m in pub profits, despite a 4.4 per cent decline in beer sales. Heavy investment and a move upmarket by the 444-strong estate are clearly paying back; food sales now account for more than 13 per cent of pub turnover.

Churning of the estate remains active. Some 43 pubs were sold, nine were opened and pounds 4.5m was spent on 79 refits. While the pubs are above average quality, Boddington has prudently written down their value by pounds 45m. The impact on the gearing ratio was muted by cash flow. Borrowings fell by pounds 5m to pounds 94m or 48.6 per cent of shareholders' funds of pounds 192.6m, down from pounds 221m.

Borrowings include a tail-end pounds 6m piece of convertible loan stock - which expires in May - and reflect the near-20 per cent stake in Devenish, the rival pub operator it narrowly failed to take over in 1991.

Whether Boddington will revive hostilities is anyone's guess, but the one thing in its favour is time. The original value placed on Devenish's shares by the ten-for-seven offer was around 220p. That would now equate to 328.5p with Boddington's shares closing yesterday at 230p, up 14p. Devenish fell 5p to 268p.

While Devenish continues to be hindered, Boddington's future is clearer. Healthcare profits rose from pounds 2.3m to pounds 3.2m and should continue to grow. Hotels and restaurants improved from pounds 2.6m to pounds 4.1m, and are set to benefit from new openings. And the fledgling drinks wholesaling side, which boosted its contribution by 75 per cent to pounds 7.5m, is carving out a commanding position in the market.

Boddington shares trade on a prospective multiple of 12.4 on likely 1993 pre-tax profits of pounds 29m, sport a gross dividend yield of 4.2 per cent on the 7.3p payout, and should be bought.

(Photograph omitted)