View from City Road: Dispiriting US news for Grand Met

Gerald Corbett's renowned facility with corporate tax bills, honed to a sharp edge while he was finance director at Redland, looks like saving Grand Metropolitan about pounds 30m a year for the next three or four years.

Not that it did the company any good yesterday. Adroit reshuffling of borrowings, leading to a fall in Grand Met's tax rate from 32.4 per cent to 29.2 per cent, was largely lost on the stock market. Analysts were caught severely on the hop by news that de- stocking in the US spirits market would lop around pounds 40m off profits in the year to September, and dealers duly sent the shares plunging 26p lower to 457p.

This may seem a harsh response to what Grand Met claims is a one-off effect, brought about by mergers and consolidation in the US spirits trade. Grand Met fans have nevertheless been rattled by this unexpected setback to IDV, previously the star performer which still makes over 50 per cent of group operating profits.

The bad news from IDV has distracted attention from strong progress in North American foods and Burger King. European foods, weakly branded, remain a severe drag, losing money on pounds 337m of sales, and Inntrepreneur Estates, although now breaking even, is showing no return to Grand Met on its pounds 550m investment. A decision on its future is likely after the summer.

Precious little benefit has yet been seen from the company's pounds 175m restructuring programme expected to save pounds 80m a year from next year onwards. But until this turns up, and given the odd doubt about quality in some aspects of Grand Met's profits, the discount rating - a p/e of 14 and a yield of 3.8 per cent - compared with Guinness and Allied-Lyons could well persist.