UK: S&N must consider retailing exit - analysts
Analysts are calling on UK brewer Scottish & Newcastle to consider making an exit from licenced retailing if it is to succeed in becoming a pan-European brewer.
A statement from equity analyst WestLB Panmure comes after S&N's investor presentation last week that reiterated the company's desire to become a cross European operation.
But while S&N talked about "motive means and opportunity" in realising its goal, WestLB said: "Although we believe that the presentation reads like a detective story, we believe that it does not really give any real clus as to how the management will be able to deliver against its hopes."
WestLB said that Danone, following the Kronenbourg deal, had three calls on S&N's capital which could leave the brewer with weak cash interest cover. "To us, this situation means S&N must either have a rights issue and/or finesse an exit from licensed retailing in order to realise its stated ambition of becoming a pan-European brewer.
"However it must do this without creating a hole in earnings or making the group vulnerable."
S&N meanwhile has reconfirmed its support for its pub division which WestLB calls "questionable" because the inclement competitive environment means there will potentially be little reward for investment.
WestLB said: "We find the logic for this continuing vertical integration questionable. Furthermore despite the sale of its under-performing pubs, we believe that the management still has much work to reposition the remaining pubs in growth segments."
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