Bottom Line: Satisfying signals from S&N

SINCE Scottish & Newcastle bought Chef & Brewer in September its share price has risen by 22 per cent and by 10 per cent in the past week alone. A 14p fall to 524p on yesterday's interim profits rise from pounds 107.2m to pounds 108.9m could therefore be seen as an overdue correction rather than a disappointment.

The market has recognised that S&N is astutely positioned in brewing, pub retailing and leisure. In pubs S&N has scope sharply to improve returns. This is particularly true in food, which accounts for only 8 per cent of sales against the industry norm of 12 per cent. In view of this handicap a rise in pub profits from pounds 28.4m to pounds 29.2m was pleasing.

Benefits from Chef & Brewer will also accrue fairly quickly and make the purchase price of pounds 571,000 for each pub look appetising.

Leisure, comprising Center Parcs and Pontins, has become a strong suit in S&N's hand. Profits rose from pounds 38.8m to pounds 42.4m despite lower spending per head.

Occupancy levels at Center Parcs in the UK and Benelux countries are more than 90 per cent and fell only from 95 to 89 per cent in France.

Beer, which saw profits drop from pounds 53.9m to pounds 50.4m, is S&N's flat area. Heavy wholesale discounting by the big brewers and a pounds 4m annualised loss from a switch in duty are the prime depressants. Bad debts on S&N's extensive free-trade business fell 33 per cent to pounds 6m.

For the year S&N should make pounds 223m pre-tax, giving earnings per share of around 33.5p. While the p/e is frothy at 15.6, a 4.2 per cent gross yield on an expected 17.5p dividend gives body to the shares.