Merged SABMiller is a brew to be avoided

Ashstead tooling up nicely; Minorplanet yet to arrive in orbit

Say goodbye to South African Breweries and raise a glass instead to SABMiller. That is the new name for the South African brewing group which completed its £3.6bn takeover of Miller Brewing of the United States yesterday. It has proved a controversial deal with the companies' shares initially racing ahead on the news only for all the gains to be wiped out by the fall in world stock markets in recent weeks combined with some City criticism over the wisdom of the deal.

But now the deed is done, what action should shareholders take?

On the positive side the acquisition reduced the currency risk in SAB's earnings which have been devastated in recent years by the depreciation of the South African rand. The injection of Miller's dollar earnings takes the proportion of earnings derived from South Africa from two thirds to a third. It also cuts the company's cost of capital.

SAB says it will now have a far stronger portfolio of brands, spanning its own Castle lager to Miller Lite, and is hoping for significant cross-selling opportunities. These include using the Miller distribution system to pump SAB's Czech lager Pilsner Urquell into the US and selling the Miller brand to China, where the locals drink brews of similar strength and taste (ie weak and fizzy).

Critics say the US market is flat with limited growth opportunities. SAB points to growth of 1 per cent adding that demographics will push a bulge of beer-consumption age drinkers in to the market in the next few years. According to Investec SAB may not even need growth, claiming that if it can maintain Miller's market share at 20 per cent it could add $1bn to the value of the business.

But there are downsides too. Cost savings are estimated at just $50m and without these the deal is not earnings enhancing. Another is the stock overhang. The deal gives Philip Morris a 36 per cent economic interest in SABMiller, though its voting rights are capped to 25 per cent of the shares. Philip Morris is locked in until 2005 but can sell down thereafter.

A further worry is the combination of "management stretch" over so many geographic markets and the possibility of another big acquisition. On analysts' forecasts of $1.1bn profits this year the shares – up 18 at 530p yesterday – trade on a forward p/e of 14. Not expensive but not worth chasing given the risks.

Ashstead tooling up nicely

Ashstead, the plant and tool hire business, has seen several spanners thrown in its works in the past six months. The downturn in the American economy knocked the scaffolding from Ashtead's US operations, which account for two thirds of group revenue. Then the company needed to renegotiate its banking facilities after its finances became stretched. The result was two profits warnings in the past six months and a share price that even Bob the Builder would struggle to fix.

Yesterday, though, the sun started to shine again just a little with results that were better – or at least not as bad – as feared. Pre-exceptional profits were £28.9m with the second half marginally profitable against previous forecasts of break-even. The real bonus for shareholders was the maintained dividend, which gives a yield on the shares of 6.5 per cent. All this pushed the stock up 11 per cent to 44p against a high of 283p four years ago.

Ashtead's key US business, Sunbelt Rentals, did well in a difficult market last year achieving like-for-like sales growth of 3 per cent. That is better than rivals, meaning the group is increasing market share in a fragmented industry. Also, Ashtead reckons it will benefit from a downturn which pushes more people to rent rather than buy. Even so, the market is expected to be flat this year.

In the UK, the group's A-Plant operation has seen profits fall 9 per cent as contracts with manufacturing customers have dried up. It now plans an additional brand, Tool Hire Shops, to appeal more directly to smaller firms.

On ABN Amro's current year profit forecast of £26.7m the shares traded on a forward p/e of 9. That is cheap, especially when backed by the chunky dividend which the company has only failed to increase twice in 15 years as a plc. The worry is that some investors sell after the dividend is paid out in September. It may be too early to call the turn but the shares have fallen so far that they are starting to look interesting.

Minorplanet yet to arrive in orbit

Despite tough trading conditions, Minorplanet Systems has undoubtedly enjoyed a solid quarter in what, analysts say, is also a traditionally quiet period for the company.

It sells technology to fleet operators that monitors and records a vehicle's position and speed as well as the distance it has travelled.

Pre-tax losses, before exceptional items, were £900,000 in the third quarter to 31 May compared with losses of £1.6m a year earlier. Sales were £31.1m, up 234 per cent.

Sales in the UK grew 39 per cent to £10.4m while sales in Europe and Australasia came in at £11.6m, up from £1.8m in the previous year.

Encouragingly, the company predicts more of the same, saying it is confident its fourth-quarter sales will "significantly exceed" the third-quarter number. Moreover, it stresses its order book remains strong and that it is well funded. The company ended the three-month period with about £16.6m of cash.

But not everything in the garden is rosy. Its Europe and Australasia business remains loss-making as does its US operation and market conditions remain tough.

If more of its customers delay purchasing decisions, things could take a turn for the worse. Some currently take a couple of months to sign up while others take a full year.

Its broker, Investec, is forecasting the company will break even in the current year and predicts a £10m profit next year.

That puts the shares, down 26p to 115p yesterday, on a prospective multiple of 13 times, which given the growth prospects, does not seem particularly demanding. But with tech shares still out of favour, there is probably no rush to buy.