THE INVESTMENT COLUMN: Greenalls set to spend more

Greenalls, now the biggest independent pub owner since taking over Boddingtons in 1995, was making much of its accelerating capital expenditure programme yesterday. This is set to grow from pounds 175m this year to pounds 200m in 1998, which spells good news for the 2,000 or more extra employees being taken on as the group develops its theme bars, ranging from Millers Kitchen for the family to Henry's Table steakhouses.

But the City remains unimpressed: after underperforming the market by 28 per cent over the last six months, the shares fell another 3.5p to 490.5p yesterday. There were gripes over the interim results, with pre- tax profits up from pounds 27.1m to pounds 57.8m in the six months to March seen as a mite disappointing. Hoare Govett trimmed its full-year forecast by pounds 5m to pounds 162m as a result.

Even so, underlying operating profits up 14 per cent to pounds 88.6m look comparable with highly regarded rivals Whitbread. Sales growth in the managed pubs and restaurants business ranging from 3.8 per cent in drinks to 20.5 per cent in slot machines looks at least as good and in some cases much better than Whitbread.

The plan is to take branded and "concept" bars from 360 to 500 over the next two years, while shifting 245 managed pubs to tenancies will maintain Greenalls' beer volumes. The group is the biggest customer of Bass, Carlsberg-Tetley and Whitbread, putting it in a strong position when contracts are renegotiated in September 1998.

The real problem is that, held back for at least a year by the takeover of Boddington, it is having to run to catch up with the likes of Whitbread, which has been investing heavily in its pubs for years. Gearing is still likely to be above 60 per cent next year, when the consumer boom may be looking a little mature. Greenalls was warning yesterday that trading in North-west England is currently difficult. Standing on a forward p/e of 13, the shares therefore look a hold.