Allied Domecq is doing better but jury is still out

Allied Domecq - a dismal share-price performer in recent years - finally managed to get a boost this week after its full-year results came in at the top end of market forecasts.

There have been lots of thoughts from Sir Christopher Hogg about the positive impact of the Guinness Grand Met merger, with Allied making it clear that it would like to buy Guinness's Dewars scotch whisky brand.

But the jury is still out on Allied Domecq with many in the market seeing the group as an unfocused food and drinks group with interests ranging from a wide range of spirits to a chain of British pubs and franchised catering businesses.

Lots of brands were mentioned by Sir Christopher in his long discourse on the new Allied Domecq, now shorn of its Tetley brewing operations not to mention its Lyons tea distribution operations in Ireland.

Brands like Ballantines, Beefeater, Courvoisier and Kahlua - but not a mention of a single Irish brand despite Allied's controlling stake in the hugely profitable Cantrell & Cochrane group.

C&C, of course, is the focus of much speculation over its future ownership, with Guinness being compelled into a sale of its 49 per cent stake as part of the EU sanction of its Diageo merger with Grand Met.

The C&C management has in the past been left pretty well alone by Allied Domecq to get on with its job of running an Irish-based company with interests in soft drinks, cider, alcopops, liqueurs as well as one Irish whiskey brand.

C&C has been allowed to make acquisitions as long as it did not compete directly with Allied Domecq - thus the move to buy liqueur companies in Italy.

C&C reports results in the next couple of weeks and solid growth from last year's £43 million profits are expected. Assuming C&C manages to maintain its record of 10 per cent-plus profit growth a year, then 1997 profits not far short of £50 million may be in the offing.

That will make it an opportune time for Guinness to sell its stake. But given Allied Domecq's express hopes of buying brands from Guinness as part of the Diageo linkup, few believe that Allied will buy out its minority partner at a cost of more than £300 million.

Indeed, given current gearing of over 50 per cent and plans to buy the Dewars brand, some are wondering where C&C fits in with Allied's long-term plans, especially if Allied Domecq goes ahead with a suggested demerger.

A flotation of C&C in its entirety - rather than a simple sale of the Guinness stake - may not be as farfetched as might seem at first. An Irish drinks company with a stock market value over £600 million and an impressive profits record would be an attractive investment for Irish fund managers.