An intoxicating time for brewers – MoneyWeek

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ThefactisthatweBritonsaremorethankeenonatipple–inEurope,onlytheFinnsandtheIrishputawaymoreperperson。

Welikealcoholsomuchthatwedrinktwiceasmuchasourgrandparentsdid50yearsago–theequivalentof28bottlesofspiritsperpersonperyear–andsalesofvodkahavesurged40%infiveyears。

Somuch(theGovernmentsays)thatalcoholabusecoststhenation£20bninhealth,policinganddamagetotheeconomy。

Andsomuchthat(accordingtoaDeloittesurveyjustout),whileweintendtospend3%lessonbuyingpresentsthisChristmasthanlastChristmas,weplantospenda(un)healthy6%moreonsocialising。

ButwhyisBritainanationofdrinkers?

Theanswer,accordingtoprofessoroforganisationalpsychology,CaryCooper,isaDailyMailleaderwriter’sdreamdouble:housepricesandfamilybreakdown。

Sincetoday’s20and30-somethingscan’taffordtobuyhouses–andaretoomessedupbytheirparents’divorcestoinvestproperlyinlong-termrelationshipsthemselves–theyhaveboththesparecashandtheinclinationtogoonmorebendersthanever。

Goodnewsthenthatboozeisgettingcheaperinrealterms–anastonishing49%moreaffordablein2000thanin1978,sayGovernmentfigures。

Thisweek,theUKtookitsloveaffairwithalcoholastepfurther:newlegislationmeanspubscannowstayopenaslateastheylike,subjecttocouncilapproval。

Thepoliticianssaytheywanttopromoteamorerelaxed,Continental-styledrinkingculturewherewedon’tallspilloutontothestreetsatthesametimeandfight。

Thepolicesaywewon’tgetthat。

Instead,therewilljustbemoredrinkinganddisorder。

Sowhichwillitbe?

Wesuspectthelatter,butthepubtradecan’taffordtolooktoogleefuloveritsgoodfortune,sospokesmenhavebeenbusydownplayingthepotentialboosttoprofitsfromlongerhours。

Theypointoutthatonly240pubsandclubshavesofarbeengranted24-hourlicences。

Butthetruthisthatofthe60,000pubsinBritain,50,000haveappliedfortherighttostayopenlonger。

Why?

Becausetheywantmoretimetosellmoredrinks。

AccordingtoareportlastyearbyGoldmanSachsonMitchellsButlers,whichownsover2,000pubs,thebigpubgroupscanexpectaboosttorevenuesofaround10%,basedonthe(conservative)assumptionofanextrafivehoursdrinkingspreadoveraweek。

Forthesevenbigpubchainsthatownmorethan1,000pubs(includingEnterpriseInns,PunchTavernsandGreeneKing),thatmeansalifttorevenuesof£500m。

Forallpubs,thefigureisanintoxicating£1bn。

Cheers。

Thethreebestsharesinthesector

PunchTaverns(PUB)hashadabusyyear,withtwoacquisitions,tworefinancings,twodisposalsandtherefurbishmentorredevelopmentof936pubs,saysRobertColeinTheTimes。

Lastyearitraiseditspre-taxprofitsby28%anditscashflowhasbeenstrongenoughtoenableittoliftthetotaldividendby26%,whileitsstrategyofcuttingpoorerpubsandaddinggoodpubsisproducing“strongorganicgrowth”。

Opening-hourextensionswillprovideaboostintrading,helpingbothsalesandmargins,andbestofallthesharestradeonap/eratiooflessthan11。

“Buy”。

RivalEnterpriseInns(ETI)lookslikeagoodpurchasetoo。

Enterprise,whichowns8,500pubs,hasjustannouncedprofitsup32%to£306m,saysPhilipAldrickinTheDailyTelegraph,soit’slaunchinga£200msharebuybackanduppingitsdividendby50%。

Onareasonablep/eof13。

5anda2。

3%prospectiveyield,investorswoulddowelltoholdthis“cashmachine”intheirportfolio。

Finally,sharesinSABMiller(SAB)maybeworthalook。

TheyhavebeenmovinghighersincetheUKbrewinggroupannouncedithasacquiredtheremaining41。

8%itdidnotalreadyownintheCentralAmericanbrewerBevCoLtd。

BevCo’sbrandsincludePilsener,Bahia,MillerGenuineDraftandCoca-Cola。

DresdnerKleinwortWassersteinsaysthedealmakes“goodstrategicsense”forSABMillerandwillenhanceearnings。

Dresdnerestimatesthecosttobearound$400mandthereturnoninvestedcapitalat6。

3%–alittleonthelowside,butthebrokerreiteratedits‘hold’ratingand1,100ptargetprice。

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