Morland's Hen lays golden eggs

The Investment Column

Shareholders in Morland, the Oxfordshire-based brewer, who helped fight off the bid from Greene King nearly four years ago at 450p a share have at last been rewarded for their patience. Having underperformed for most of the intervening period, this year the shares have at last broken decisively through the 550p barrier and now stand at 628p, up 9p.

Renewed bid speculation has helped, fuelled by the authorities' apparently more relaxed attitude to consolidation in the industry. But Morland has also shown itself adept at managing the business and is beginning to prove itself with acquisitions.

Yesterday's half-year figures to March revealed pre-tax profits soaring 30 per cent to pounds 6.09m, swollen by last year's acquisition of Unicorn Inns and a group of outlets from the Chapman family.

The aggregate cost of pounds 25.1m for the 23 pubs in question raised eyebrows at the time, but Morland is already making the assets work. Margins have been raised by up to 3 per cent at Unicorn and between 10 and 12 per cent at Chapman. More importantly, despite the drag caused by the rights issue which accompanied the Unicorn deal, earnings per share have climbed an underlying 8.3 per cent to 15.7p in the latest period.

Meanwhile, the existing estate is continuing to grow, with profits up 10 per cent on unchanged numbers of outlets. Morland is continuing to swim against the trend of falling beer volumes generally, with its Wig & Pen and Newt & Cucumber formats aimed at younger and female town-centre drinkers.

But the big question for Morland is whether it can continue the huge success of Old Speckled Hen, the upmarket ale which was relaunched in draft in 1991. Volumes have rocketed from virtually nothing to 40,000 barrels-a-year on the back of guest beer tie ups with the big brewers and the launch of canned and bottled versions. Since Carlsberg was signed up in April, all four of the brewing giants are now aboard, along with all the main supermarkets in the take-home trade.

The hope is that rolling out the brand to more stores and overseas, including the US, will now take up the slack and Morland has doubled the capacity of its Abingdon brewery to 220,000 barrels in anticipation. In the mean time, profits of around pounds 14.4m this year would put the shares on a forward p/e of 17. Hold.