Investment Column: Greene King

GREENE KING, the UK's second-largest regional brewer, is enjoying its bicentenary. The maker of Abbot Ale and owner of Hungry Horse pubs, celebrated its anniversary with interim results showing it outstripping its larger rival, Wolverhampton & Dudley, and delivering strong profits growth.

Greene King's success is impressive given the tough conditions in the pubs market, where beer sales continue to decline and margins are coming under pressure from the minimum wage and working time directive.

Concern over the group's like-for-like sales, which were down 2 per cent, should be kept in context. That figure relates to only 163 out of a total of 622 pubs, some of which are earmarked for disposal.

The integration of its recent series of acquisitions is progressing ahead of schedule, although the costs associated with this process have affected profits. Earlier this year, Greene King beat W&D to buy Morland, the owner of the Speckled Hen and Ruddles ale brands, for pounds 182m.

This was considered to be a full price for the estate, but the deal is set to bring in pounds 12m of cost savings and will, in time, be a strong contributor to earnings growth.

In May, Greene King bought 175 pubs from the former Marston estate when W&D took it over. Overall, acquisitions boosted its sales by pounds 36.5m in the half year.

Food sales are now an important second string to Greene King's bow, growing by a strong 65 per cent to pounds 28.5m in the period. Meanwhile, Greene King will replicate in the second half its pounds 2.5m spending on marketing its best-known ales.

Greene King is a consistently strong performer, and is well focused and respected in the sector. Morgan Stanley Dean Witter forecasts pre-tax profits of pounds 60.4m, giving earnings per share of 66.2p. The shares, up 11.5p at 517p yesterday, are cheap.