The Investment Column: Morland has a lot to swallow

MORLAND, the Oxfordshire brewer, has been suffering from a prolonged bout of indigestion. In the past year, it has swallowed both the Exchange Diners chain of eateries and Ruddles, the Rutland brewer beloved by real- ale enthusiasts. The result is that the shares have never regained the 500p level at which the pounds 22.2m rights issue was pitched early last year.

Turnover rose by 50 per cent for the six months to 31 March and operating profits, before exceptional items, were up 19 per cent to pounds 7.8m. But Exchange has required substantial expenditure on refurbishments, reorganisation costs at Ruddles came to pounds 1.32m, while a brewing contract worth pounds 1.2m in the first half year has not been renewed.

The Rutland brewery will also close this autumn with additional costs of pounds 900,000.

Sales of Old Speckled Hen, the group's well-known bitter, grew by 19 per cent in a declining national market. Not including Ruddles, beer sales rose by 11 per cent while brewery profits climbed to pounds 2.6m. The tenanted estate also bucked the national trend.

Debt and interest charges are well up on a year ago and the tax charge has risen. Morland needs to spend a further pounds 1.5m on fermentation capacity at Abingdon in the next few months, although the transfer of Ruddles production will raise capacity utilisation there from 60 per cent to around 90 per cent and produce cost savings of around pounds 800,000 a year.

The second half has got off to a slow start with widespread flooding in Morland's Thames Valley heartland. For the full year analysts are edging forecasts up to pounds 18.2m. The shares closed unchanged at 407.5p yesterday. At just under 10 times forecast earnings, they look high enough for now.