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Brewers anticipate a droop too. Scottish & Newcastle reckons the ban will cut sales of their beer in pubs by 5 per cent and pre-tax profits by £10 million. Still, some investors insist they’re breathing easily. Luke Newman, manager of the F&C Special Situations Fund, says, ‘I’m very relaxed …the growth of pubs as places to dine will be good news for medium- to long-term profitability, whatever the short-term blip.’ He has kept 5 per cent of his fund invested in pub companies that are improving their food offering and facilities: Marston’s, Mitchell & Butler and Fullers.
Bingo halls, though, fear their number is up. They make 70 per cent of their revenue from ‘interval’ sales, but with one Scottish operator estimating that 70 per cent of its clientele now heads outside for a fag in the interval, profits are forecast to fall by 16 per cent. Rank has seen like-for-like sales decimated in its Scottish Mecca outlets, and its shares drop to a 12-month low. Gala Coral even postponed its flotation because of the ban. Some companies are now investigating hand-held bingo machines for use in outdoor shelters.
Makers of shelters and heaters, by contrast, are rubbing their hands in glee. Last month, the awning manufacturer Hillarys told the FT it had seen a surge of orders from pubs. And last year, a survey of 250 Scottish pubs found that half had bought patio heaters.
For investors, though, it’s difficult to cash in. First, all the major manufacturers are privately owned — Hillarys by private-equity firm Change Capital Partners, and the patio-heater giant Calor by the heirs of Dutch tycoon Paul van Vlissingen, who died last year. Second, retailers such as Wyevale have stopped selling heaters on environmental grounds — they emit as much carbon dioxide as one and a half cars, making a panatella look positively eco-friendly.
Companies that help smokers quit may prove a more ethical, and profitable, investment. Sales of nicotine patches and gum have risen 50 per cent in the past five years, according to Mintel, and the market is now worth £97 million annually. Here, the largest UK-listed player is GlaxoSmithKline, which makes Nicorette and the Zyban anti-smoking pill. With four million smokers intending to give up in the next 12 months, Glaxo is rated a buy by Citigroup and Collins Stewart. There’s also a more speculative treatment, and investment, in the form of Aim-listed Chromogenex: it’s Nicolite system uses a laser to stimulate the release of endorphins in the body and suppress nicotine cravings. Since its launch, the shares are up 14 per cent.
But what of tobacco shares? Remarkably, cigarette sales dipped by only 2 per cent when Ireland went smoke-free — and BAT is still rated a buy by Merrill Lynch and Evolution. The company is even diversifying into smokeless products such as snuff. If you can’t really imagine snuff catching on at the Dog and Duck, consider Sweden. Snuff is hugely popular there — and it’s the most successful industrialised nation in reducing smoking-related deaths. That’s not to be sneezed at.
Matthew Vincent edits Investors Chronicle.
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