Bottom Line: Whitbread ailing no longer

THERE is no doubt that Whitbread, shorn of an antiquated share structure, cumbersome shareholdings in regional brewers and bank borrowings, is on the right track in its bid to pull away from a shrinking commodity beer market.

But the stock market found itself non-plussed yesterday and knocked the shares 9p to 563p. It is all very well to shift future profits, via a change in transfer pricing, from brewing to retailing, lowering beer to less than 20 per cent of the total and lifting higher-quality retailing to 60 per cent on the 1993/4 figures.

And there can be no dispute that Whitbread's retailing businesses are a proven home for an extra pounds 100m of capital spending this year on which the group expects to earn a 15 per cent return.

The trouble is that many believe that organic growth alone will not offset significantly the, at best pedestrian, outlook for beer and leased pubs. They are looking for an ungeared Whitbread to speed things up with a suitably large acquisition.

This overlooks the scope for Whitbread to exploit its strong beer position - half its output, or double the level of a few years ago, is in premium form. Assuming profits of pounds 245m this year, a p/e of 15 and yield of 4.4 per cent are good value.