One to Watch: Raise a glass to pubs

THE Capital Pub Company runs "non-branded and unthemed, high-quality free houses", each of which has its own identity and serves the whole community. As the name would imply, it operates mainly in the London area and prides itself in the individuality of its 25 pubs.

It has been a tough time for pubs. Higher levels of alcohol taxation, cynically disguised as being motivated by health concerns, a view that only the nave accept, combined with the downturn in the economy with its impact on discretionary spending and competition from the major high street stores, have proved formidable challenges, compounded, of course, by the smoking ban.

Many would argue this has threatened the congeniality of a visit to the pub, but the reverse appears to be true. There is evidence of an increasing attendance at pubs, attracted to the more pleasant smoke-free atmosphere, better-quality food and a move away from the macho "drinking howf" with its embodiment in the working-class principle. Pubs are now increasingly being marketed as family-friendly leisure centres, a destination point rather than one of necessity.

This has been rather borne out by the latest results from Capital Pub. Revenue for the first half of the year to the end of September increased 9 per cent, pre-tax profits were up 20 per cent and earnings per share 23 per cent higher. There are some issues. The company remains highly cash generative but does have debts of about 28 million, representing a gearing of 83 per cent. In addition, the lack of a dividend payment might deter some into this Aim quoted security. Nevertheless, the recovery in the share price should continue, given a reasonably fair wind.

The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Finsbury Foods

21.5p +0.5p

Broker says HOLD

FINSBURY Foods has been upgraded from "sell" to "hold" by KBC after Finsbury said it is trading "in line" with expectations.

KBC said: "The shares have fallen close to our target price, so we are upgrading. The shares look attractive on a PE of 3.3x to June 2010E, but the business is constrained by debt."

HSBC

683.4p -14.9p

Broker says BUY

RBS Equities has upgraded its recommendation on HSBC from "hold" to "buy" and raised its target price from 600p to 825p.

The broker said: "We anticipate a compelling cyclical earnings and profitability uplift at HSBC, particularly evident through FY11F and FY12F as short-term interest rates rise."