Work to do at Wolverhampton

The investment column
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The Independent Online
These were record profits from Wolverhampton & Dudley, but strip out property profits and the rate of increase, 7 per cent to pounds 40.2m, is unlikely to set pulses racing. True, margins recovered nicely in the second half so that for the full year they matched last year's 18.4 per cent, but the underlying problems facing the West Midlands brewer remain.

With market shares of only 6 per cent in the Banks's region and 4 per cent in the North-east, where the recent acquisition, Camerons, is located, there is plainly plenty to go for in terms of organic growth within Wolves' existing areas. But the flip side of that niche position is that the company finds itself uncomfortably squeezed between its bigger rivals such as Bass and Courage still slugging it out for market dominance.

That is a problem in Wolves' core region because profit margins in the West Midlands are the lowest in the country, with beer selling for less than 120p a pint, much cheaper than anywhere else. In an increasingly competitive environment, changing perceptions of how much a pint should sell for and persuading rivals to follow you up is a non-starter. That means volumes are the key and here the company has done better than average in tenanted pubs but it is little consolation when that outperformance means a fall of 3.2 per cent compared with 4.2 per cent for the market.

Only in the more food-oriented destination pubs and restaurants and taverns have like-for-like wet sales improved much, underlining the importance of food in driving beer sales, and Wolves does not yet have enough pubs providing meals.

Another persistent problem is that Camerons, the North-east brewery acquired a couple of years back, is operating well below capacity and will lose out to its bigger rival on that patch, Vaux, unless it can acquire more houses in the area to tie into its beer sales.

All that said, Wolves is a soundly run business and the 10 per cent increase in the dividend to 15.3p confirmed its progressive dividend policy after the disappointment of the rate of growth in the payout at the half-way stage of only about 5 per cent. After yesterday's 21p rise to 551p, the shares stand on a prospective price/earnings ratio of about 13. With little yield support that is high enough.