UK: Broker Merrill Lynch has raised a glass to brewer Scottish & Newcastle

Broker Merrill Lynch has raised a glass to brewer Scottish & Newcastle, which saw its shares come within a whisker of their threeanda-half year high on February 13, Evening Standard Via Thomson Dialog NewsEdge communicated.

The brewer famed for its bottles of Newcastle Brown, John Smith's bitter and Kronenbourg lager was among the Footsie 100's best performers as Merrill raised its rating on the shares to buy, with a 12-month target price of 590p.

It hails S&N as the most generous of brewers, with the highest dividend payout ratio and yield of any of the major European brewers. It has also been the least acquisitive, instead concentrating on its Baltic Beverage Holdings joint venture with Carlsberg, selling beers like Baltica to the Russians.

Merrill says it expects BBH to contribute around a quarter of S&N's group earnings in 2006 before tax, interest and amortisation, with the Russian market continuing to be sustained by strong oil and gas prices.

The prospect of a bid for S&N is thrown in for nothing. Merrill points out the group is still only valued at GBP4.4 billion and may prove to be too much of an attraction for one of its bigger rivals, such as Heineken or InBev.

Meanwhile there is less than a month to go before the smoking ban in pubs comes into force in Scotland, and brokers are already pondering the likely winners and losers. Young's Brewery, Punch Taverns, Greene King and nightclubs operator Luminar were all on the slide yesterday. It is thought nightclub owners will be hardest hit by a total ban in England but would benefit from the increasingly unlikely prospect of a partial ban.

Broker Panmure Gordon says Punch Taverns has around 2000 pubs in its portfolio that do not sell food. A full ban would be bad news and force it to accelerate its programmes for refurbishment and tail-end disposal.

Panmure says pubs in Scotland have had to contend with local authorities prohibiting the use of outdoor patio heaters, which are deemed unsafe.

Telephone directories publisher Yell was the best Footsie 100 performer as City speculators dreamed of a bid from internet service provider Google. US broker Morgan Stanley says such a deal would bring Google access to every small business in the UK and increase its exposure to traditional media areas.

By contrast, Boots was one of the worst performing blue-chips after going ex its 200p-a-share special dividend and a consolidation of 39 for every 58 shares held.

Supermarkets chain J Sainsbury ticked better, despite broker Dresdner Kleinwort Wasserstein downgrading the shares from hold to reduce with a target price of 295p. The broker says that, although Sainsbury's delivered the best like-for-like sales growth of all of the UK food retailers over Christmas, it does not believe investors will be willing to pay significantly ahead of adjusted net asset value for this business.

Lloyds TSB and rival Barclays both made headway. Influential US financial magazine Barrons reckons Barclays shareholders have been unduly harsh about the company's loan book, worried about the impact of a slowing housing market and soaring consumer debt levels. Lloyds TSB continues to be powered by talk of a bid from Spain's Banco Bilbao Viscaya Argentaria.

Deutsche Bank has raised its target from 550p to 580p - impressed by the improving outlook for its Scottish Widows life assurance subsidiary.

Worries that the US Federal Reserve may be prompted to raise interest rates above 5% by its new chairman Ben Bernanke after he takes over tomorrow, sent investors scurrying for cover. Share prices retreated across a broad front in New York overnight, with the Dow closing down 26.73 at 10,892.32. By contrast, share prices bounced back in the Far East on February 14.

In Tokyo, investors enjoyed their best day in nearly three weeks as buyers came in for the likes of Toyota Motor and other big industrial groups on the basis of their strong earnings outlook. Mitsubishi UFJ Financial was another big mover following reports that profits are set to grow 20% this year.

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