View from City Road: Bully for Bulmer

TAUNTON CIDER has only itself to blame for the abysmal level of subscription for its public offer of shares. Results yesterday from its rival, HP Bulmer, showed that despite stock market difficulties and the cold reception that other flotations have received this summer, Taunton should have got its offer away like clockwork.

Taunton made two mistakes. The first was to price the offer at no discount to Bulmer. By pitching itself directly in line with its more established peer, Taunton made itself look expensive.

The second mistake was to ignore the opportunity offered by Bulmer's results. Taunton could not know what the figures would be but, as much of the company's promotion rested on growth in the cider market, Taunton should have had the courage of its convictions and trusted that Bulmer would not let it down. It seems pride got in the way.

Bulmer - which ferments the Woodpecker and Strongbow ciders - increased pre-tax profits by 19 per cent to pounds 17.1m. A final dividend of 5.55p a share (5.15p) makes a total of 9p (8.35p). The performance is all the more pleasing because Bulmer's other businesses - distributing Red Stripe and San Miguel lagers, and the soft drinks Perrier and Orangina - had a hard time in the year to 24 April.

Key to Bulmer's success has been promotion of its main high-volume cider brands. It increased its spending on sales and marketing last year by 15 per cent to pounds 43m. Crucially, however, the money was not spent on flashy television adverts but on a sales force hell-bent on getting Woodpecker and Strongbow taps into pubs.

Bulmer has not ignored the premium - alcoholically strong - sector of the market so ably exploited by Taunton and its Diamond White brand. But with Scrumpy Jack, Bulmer has treated the higher margin premium business as a useful and profitable adjunct rather than relying on it for mainstream earnings.

Bulmer shares added 16p yesterday to close at 300p. If it makes pounds 19m taxable profits this year it is trading on a multiple of 13.5 times earnings per share.

That is hardly exacting, so while Taunton picks up the pieces of its disappointing float, buy Bulmer.