Acquisitions put S&N in driving seat

Latest results from Scottish & Newcastle underline the importance of the acquisitions of the Chef & Brewer pub chain and Courage, which elevated it to pole position in the beer league. Without those purchases S&N would have produced very dull figures indeed for the half-year to October.

Group operating profits advanced from pounds 167.7m to pounds 176.1m. Of that pounds 11.6m increase, pounds 9m came from an 11-week Courage contribution and most of the rest from Chef & Brewer. The deals gave S&N a much-needed share of the South's preponderance of beer gardens, which thrived in the hot summer weather.

The hot weather may be good for beer sales, but for the leisure market it is bad news. Operating profits in the leisure division advanced a pedestrian 3.9 per cent to pounds 50.9m, with customers at Center Parcs spending less on food, particularly at lunchtime, and the Pontins holiday camp business looking lost in a time warp. It can only be a matter of time before it is sold.

With no new Center Parcs due to open until 1997, S&N must work hard to improve results from leisure and the division's performance was the driving force behind a 12p fall in the share price to 617p. Adding 70 more villas to the Parc in the Loire valley will help, but there are signs that the operations's high re-booking percentage is flagging.

The difficulties here, though, should be more than compensated for by advances in beer and pub retailing. S&N has barely got its feet under the table at Courage, but is already showing it has the management credentials and strategy to steal a further march on the opposition - particularly Carlsberg Tetley. John Smith's bitter, part of the Courage stable, is outselling Tetley bitter. The reorganisation of Courage will eventually yield pounds 75m of savings, which, given the annualised pounds 40m of profits being made by Courage, makes the pounds 440m purchase price look cheap.

S&N's shares have had a good run recently. Forecast profits of pounds 312m this year imply a prospective price/earnings ratio of 15.5.

The yield, assuming that the 6.55p interim is followed by a 12.95p final, is a market average 3.9 per cent. Not cheap but, at a slight discount to Bass and Whitbread, still good value.