Market report: Wednesday close

THE thirst-quenching offer of beer being sold at 30p a pint by big supermarket chains has left pub operators nursing a thumping hangover.

Big-time discounting by branded brewers such as Carlsberg, Interbrew and Scottish & Newcastle throughout the Euro 2004 finals in Portugal in June, has left a big dent in pub companies' profits.

There are signs the situation is worsening too, with supermarkets encouraging drinkers to watch the Olympics at home by continuing to discount heavily.

It could not have come at a worse time for pubs, which have had to contend with poor summer weather and which are the subject of a Government-backed inquiry into tenanted-pub rents and beer supply.

US broker Morgan Stanley has been talking to Avebury Taverns, the UK's fourth-largest pubs company, which describes the past couple of months as 'pretty poor' for the industry.

Trading during July and August at Avebury saw beer volumes drop by between 5% and 6% with much of the blame laid at the door of the supermarket chains.

Quoted pub companies such as Enterprise InnsPunch Taverns, 1p better at 452p, continue to trade around 20% below their best of the year and on low ratings of eight or nine times earnings. Morgan says this represents an attractive risk-reward ratio.

The broker has raised its target on Mitchells & Butlers, up 4p at 254p, from 260p to 280p, while retaining its equal weight rating, but reckons there are some obstacles to long-term growth, including the proposed smoking ban in pubs and consumer spending slowdown. Wolverhampton & Dudley, was 3p down on 827p as broker Altium Securities repeated its buy recommendation.

The rest of the market traded in a narrow range, unable to glean incentive from a nervous start on Wall Street this afternoon where a strong set of durable-goods numbers revived talk of another rise in interest rates. In London, the FTSE 100 index closed up 4.1 at 4411.6.

Turnover was distorted by a line of 233m shares in Elite Strategies at just 0.1p each.

Half-year numbers from packaging specialist Rexam, up 6p at 430 1/2p, lived up to expectations. Brokers had been worried about the impact of a poor summer on sales of soft drinks for which it supplies cans and bottles. The company dismissed concerns over the impact of rising aluminium and energy prices, saying such costs were partly hedged while passing on the cost to customers.

National Grid Transco slipped 3/4p to 451 3/4p. Broker UBS has downgraded from buy to neutral and repeated its 12-month target of 500p. NGT is expected to complete its takeover of the UK operations of Crown Castle International next week.

Meanwhile, UBS has upgraded property giant Hammerson , 7p dearer at 737p, from neutral to buy following yesterday's strong interim results showing pre-tax profits up from £47.4m to £64.6m.

Furniture chain DFS retreated 3p to 430p amid claims that major shareholders are blocking the proposed bid by founder Lord Kirkham. Broker Beeson Gregory has downgraded from add to reduce.

TripleArc stayed at 22 1/2p after explaining the strong run-up in its shares from 17p since the start of August. It has been made preferred bidder for a 'significant' print management contract.

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