Fool's Eye View

[ December 5, 2000 ]

Scottish & Newcastle

By Stuart Watson (TMFTiger)

Great Titchfield Street -- Scottish & Newcastle (LSE: SCTN) is often tarred with the boring old-economy label but it has been a blur of corporate activity in recent months with the purchase of Kronenbourg and Portugal's Centralcer. These are to be partly funded by the recent sales of Center Parcs and Pontins.

Although investors expressed disappointment that there was no significant news on the disposal of its UK pub business, Scottish & Newcastle looks well on the way to achieving its aim of being of a major international brewer. But its shares are still struggling to attract interest compared other major European players such as Heineken and Interbrew, the producer of Stella Artois, which floated last week.

Garbled numbers

The headline figures show turnover up some 28% to £2.2b for the last six months. However, the majority of this came from the Kronenbourg acquisition of the purchase of Greenalls. Scottish & Newcastle does itself no favours by omitting to clearly show the impact of these transactions. It's difficult to get an overview of how the existing businesses are performing. Isolated volume growth figures are scattered throughout the text but by themselves are of little relevance. Operating profits climbed by 23% but the analysis of this increase is even less helpful than that of turnover. Zero marks to Scottish & Newcastle for investor friendliness in this department, I'm afraid.

The company has net debt of over £2b but this should come down significantly when cash from the disposal of Center Parcs is received. The disposal of the UK pub business, which the company is currently reviewing, would bring it down further still. Scottish & Newcastle seems to want to cherry pick this division at the moment and keep operations like Chef & Brewer.

Do the shares offer value?

Scottish & Newcastle seems to get mentioned regularly in discussions about blue chip stocks offering a good value opportunity. A fall of 5% yesterday and 10% so far today will no doubt tweak the interest of some investors. The shares offer a tempting dividend yield of 6% and the prospect of solid, if unspectacular, earnings growth. Its brewing operations are seen as more mature than others in the industry but they offer a lower risk profile. Investors seem to be looking for the latter at the moment.

Where Next?

• Scottish & Newcastle discussion board
• TMFNigel looks at the Beverages sector
• Retirement Pays Dividends