View from City Road: S&N's bark worse than its bite

SCOTTISH AND NEWCASTLE shares jumped 3 per cent yesterday as the stock market sighed in relief at interim figures that were down but better than once feared. After a grim trading statement in August the numbers for the six months to 1 November could have been a lot worse.

At S&N's annual shareholder meeting in the summer, Sir Alick Rankin, chairman, said there was no sign of economic recovery. Yesterday, despite devaluation and interest-rate reductions in the intervening period, his assessment of Britain's economy was more or less the same.

'In terms of fundamental underlying economic conditions it must be recognised there has to date been no consistent evidence of any significant upturn,' Sir Alick said. Investors usually expect chairmen and chief executives to make the best of prospects. S&N statements seem to be tinged with deliberate pessimism.

Half-year taxable profits at S&N - the brewer of Newcastle Brown Ale and operator of the Center Parcs holiday resorts - slipped back 6 per cent to pounds 108m. But strip out negligible property profits this time against a pounds 2.5m benefit last time, and higher interest charges because of continuing capital investment, and the picture is brighter. Trading profits fell by only 2 per cent.

There are legitimate doubts about S&N. Any fall in profits and earnings per share is bad news. S&N sells more beer than most to free houses and has an accompanying bad debt problem. It is strong in off-sales, but may suffer from a price war in the run-up to a value-for-money Christmas. Suspicions persist that Pontin's holiday camps, part of the leisure division alongside Center Parcs, are outdated.

On the positive side, S&N has sensible management and a fine portfolio of brands. Next year it will add the American Coors beer to a strong list that already includes McEwan's, Beck's and Theakston's. It is not burdened by debt and Center Parcs is still growing, providing a healthy motor to profits. Yesterday's confident 4.5 per cent rise in the interim dividend to 5.76p perhaps gives a better clue to the company's own view of its fortunes.

Shares finished the day at 413p. The City expects S&N to make about pounds 215m pre-tax profits for the year to next April. If it does the shares are trading on a prospective earnings multiple of 12 times. Sentiment may be adversely affected by trading statements that do not square with the reality but the shares are still good value. Buy.

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