Sparkling year for Old English Pub

It is not just the giants of the drinks industry which are consolidating to combat the effects of a mature market. Right at the other end of the scale, the Old English Pub Company has been showing for the past few years how to attack the well-lined pockets of middle-class drinkers in the prosperous south of England by scooping up small country pubs and inns.

Since its flotation at 50p on the Alternative Investment Market nearly two years ago, the company, headed by former Grand Metropolitan executive Barry Warwick, has raised close to pounds 19m and taken the chain from under 30 to 88 outlets.

All the while, the shares, recently promoted to the main market, have risen pretty much in a straight line, adding another 10p to a new all- time high of 266.5p yesterday on another cracking set of results.

Pre-tax profits more than tripled, rising from pounds 494,000 to pounds 1.63m, in the year to March. Earnings per share leapt from 2.86p to 7.77p.

With a group expanding this fast, it is often difficult to disentangle the underlying picture. In fact, the stated 11 per cent rise in sales translated into a more pedestrian 5 per cent on a like-for-like basis.

More important though was the effect on margins, which have climbed from 13.1 to 17 per cent at the operating level.

The formula continues to work, but the cost remains high. Gearing was 140 per cent at the year and is only set to fall to 68 per cent by 2000, with another 18 houses in a sweep from Hampshire to Surrey to be added this year.

Even if profits hit pounds 3.5m in 1997, the shares on a forward multiple of 21 fully discount the prospects. Hold.