Bottom Line: Vaux must motor

A 9p fall to 279p in Vaux shares had little to do with the brewer's trading results, which rose 10.3 per cent to pounds 10.7m before tax.

But it did reflect disenchantment with a dividend rise of only 3.1 per cent to 3.35p while earnings rose 12.4 per cent to 6.09p.

Vaux has persistently banged on about coupling a progressive dividend policy with restoration of earnings cover to at least twice. It will have to motor to keep up cover in the medium term, since earnings until 1996 will be artificially inflated by low tax of 20 per cent.

This points to a similarly modest 3 per cent increase in the total payout to 9.8p for a a yield of 4.4 per cent.

Sales to the free trade fell by nearly 8,000 barrels in the first half. However, new contract business, principally brewing Heineken for Whitbread, resulted in a total net output gain of 16,900 barrels.

Pub margins overall were flat; and the chances of a quick fix are limited by Vaux having direct management control over only 13 per cent of its 1,000-strong estate.

Hotels continued to improve, although the gloss of occupancy levels rising from 56.6 to 58.3 per cent was dulled slightly by flat room rates. The figures are a testament to the industry's problem of too many beds and too few customers.

A p/e of 16.4 is a reasonable measure of prospects, which generally continue to be dictated by external events.