10 October 2002 07:39
THE INVESTMENT COLUMN: There's plenty of growth still untapped at Scottish & Newcastle
IN ONE fell swoop, 2002 has been the year that Scottish & Newcastle transformed itself from a staid mature
brewer, who considered France an exciting market, into a business capable of giving even South African Breweries (now
SABMiller) a run for its money in growth markets such as India.
The takeover of Hartwell in February gave S&N 50 per cent of Russia's biggest brewer through the Finnish
group's stake in Baltic Beverage. It usefully added to S&N's portfolio in markets where young drinkers are
only just waking up to the appeal of a pint. S&N, best known for its John Smith's, Kronenbourg and Newcastle
Brown Ale beer brands in the UK, is open to the idea of more expansion, once it has raised some cash from selling its
1,500-strong pubs division.
The pubs represent the big outstanding issue facing S&N. The City has long called for the retail division (which
includes the Chef & Brewer and Rat & Parrot chains) to be hived off but after a merger with Six Continents'
pubs business fell through recently, S&N has insisted it will hang on to the management contracts of its pubs and
restaurants. A complex and mysterious transaction, which could release up to pounds 2bn of cash, is expected within the
next six months.
While S&N shares have been an investment portfolio stalwart in recent months, they fared badly on Six
Continent's revelation last week that its own pubs demerger meant it was slashing its dividend. S&N furiously
insists its progressive dividend policy will remain intact even when its pubs deal comes. Analysts are relaxed at the
dividend cover of just 1.5 times, pointing to strong cashflows from its brewing arm. At 6 per cent, the yield alone
underpins the stock's attraction, but investors should watch out for developments next year.
S&N confirmed yesterday it is comfortable with current trading and confident of meeting full-year forecasts of
pounds 520m pre-tax profits. This is despite a "variable" and damp summer. The group is expected to deliver
earnings growth of 5 per cent in the year to April 2003, and 9 per cent the year after, which analysts believe is not
currently priced in. With the final pounds 2bn payment to Danone for the 2000 takeover of Kronenbourg done and dusted
last week, it is time to look forward. Buy.
[UKIR [UK & Ireland Intelligence Wire]] |
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