1 NOVEMBER 1968, Page 25

Lyons' share

PORTFOLIO JOHN BULL

Although J. Lyons' recent talks with a property company, Rodwell Group, petered out without agreement, they were, I think, highly significant. They indicate that Lyons is at last making a full-blooded effort to narrow the gap between its current share price-78s 6d—and asset back- ing per share, which is officially estimated to be 128s but which I believe is more like 140s a share. This new development follows a con- siderable recasting of the top management of the group. Hitherto the board consisted entirely of full-time directors to whom general managers in charge of each activity reported. Now two managing directors have been ap- pointed and there is a new chairman, Mr Geoffrey Salmon. Lyons, however, is still very much a family company. Mr Julian Salmon is deputy chairman; the two managing directors are Mr B. L. Salmon and Mr N. L. Salmon.

The new approach to Lyons' property poten- tial was outlined in the last report. We recognise that we are in the property business as well as the food business,' wrote the chair- man, 'and we treat our property interests not merely as a service to the trading divisions but also as a business undertaking with the same objectives as a property Company.' You can grade the Lyons properties into four classes— redundant, non-profitable, underdeveloped and Cadby Hall. About a fifth of Lyons' assets are redundant in the sense that they consist of property let to tenants outside the group. Indeed, 9 per cent of group profits are earned in this way. Many of the tea-shop and res- taurant properties are non-profitable. By under- developed is meant, say, shops with upper parts not fully utilised. Cadby Hall consists of four- teen acres of prime land in West London.

I can guess why the talks with Rodwell Group broke down. Lyons wanted to buy the whole company and presumably would have paid about 4s 3d a share, which represents a 10 per cent discount on Rodwell's assets. Rod- well, on the other hand, wanted Lyons to inject its surplus property into its own develop- ment operations in return for shares.

Valuations at 30 October 1968 First portfolio 100 Empire Stores at 78s 6d .. 125 Phoenix Assurance at 33s lfd 100 Unilever at 72s 9d

£2,000 War Loan at £46 330 Witan at 22s 250 E. Scragg at 36s 6d 50 Barclays Bank at 78s ..

100 National and Grindlays Bank at 63s 500 Clarkson (Engineers) at 17s 100 60 Rio Tinto Zinc at 128s.

1,000 Associated British Foods at 12s 50 1.000 Jamaica Public Service at 6s 3d .. 150 Associated British Picture at 42s 9d 100 Lyons 'A' at 78s 6d 'ash with local authority at 7 per cent £6,603

Deduct: expenses £178

Total f6,425

Second portfolio f5,279 (details next week)

• •

/394 £207 £363 f920 £363 £456 f195 f315 £444 £384 £622 £312 £535 f392 £701

Lyons is obviously right to want to keep the benefits of the development of its assets en- tirely for its own shareholders. But the com- pany does have a problem of presentation. If you are half in the food business and half in property, the stock market will not rate your shares as one food company plus one property company. In fact, unless the two sides are split off from each other the whole will con- tinue to be worth considerably less than the parts. However, I am encouraged that the management is now tackling the problem.

I approve, too, of two other trading developments. Lyons is consolidating and en- larging its interests in hotels and frozen foods, both growth areas. About twelve months ago the outside interests in the Strand Hotel were bought in for £4 million in cash and loan stock. This has been done to facilitate the ex- pansion of Strand's hotel interests. Strand, for instance, in partnership with Royal Dutch Air- lines, is involved in a new 600-room hotel in Amsterdam. In any case, the group's London hotels—Strand Palace, Regent Palace and Cumberland—must have had a very good 1968 season.

On the frozen food side, Lyons and Union International have merged their interests with those of Nestle. A new combined operating company has been set up with three major brands—`Eskimo,' Frood' and 'Findus.' Ac- cording to Mr Geoffrey Salmon, this merger has afforded a 'larger. stronger and more economic basis for expansion in a quickly de- veloping and highly competitive field.'

Lyons' results for the first half of 1968-69 are due in a few weeks. I do not expect the figures to be startling, for extra SET and higher purchase tax on ice-cream, soft drinks and chocolate biscuits will have pulled profits back. But for the longer haul I think that the com- pany is at a very interesting stage. If the management lives up to its recent statements, then the shares could move ahead most satis- factorily in the medium term. Accordingly, I have bought one hundred for my first portfolio.