Brewer Daniel Thwaites has reported revenues of £70.9 million for the six months ended 30th September, up 8.4% on last year’s comparable performance, with pre-tax profits up 4.5% at £4.6 million.

The brewing business saw increased demand, with volumes for its Wainwright brand up 8%. The company attributes the improved performance to good weather in April and May, together with the extra bank holiday of the royal wedding. As a result, operating profits for the Thwaites Pubs division increased by 2% to £5 million. However, beer volumes declined in the firm’s core pub estate by 4%, although this is an improvement on recent years. During the period, the group sold eight non-core pubs at prices roughly in-line with net book value, but resulting in a loss of £0.2 million after disposal costs. The proceeds were used to by three high quality pubs.

The Shire Hotels & Spas and Thwaites Inns of Character subsidiaries saw operating profit growth of 3.3% to £3.1 million, as the hotel market continues to recover. Thwaites does warn that food and utility price inflation remains a straining factor for the business, for which the increase in food and beverage sales has not been able to fully compensate.

The group’s net debt position increased to £45.8 million pounds, from £42.8 million pounds in 2010, due to significant investment in the business, including £1.3 million pounds of renovation costs across 32 projects in its pub estate, and the acquisition of The Fleece Inn, Cirencester and subsequent refurbishments.

At a mid-price of 112p Daniel Thwaites is capitalised at £70.6 million, a huge discount of 70.7% to net asset value as at 30th September. The historic earnings multiple of 13.3 times is lower than peer Shepherd Neame (21.5 times), which trades at a smaller NAV discount of just 29.6%. This looks rather unfair to us, and with the company’s prospects rising we move to speculative buy.