Companies: BRU   

Investors looking for resilience should investigate beer-flow monitoring business Brulines, the provider of the “spy in the cellar” that allows pub companies to keep an eye on the quantity of beer poured from each tap. Profitable, high margin and cash rich, the company offers investors a defensive play on the already recession-proof pubs sector.

Brulines’ “dispense monitoring technology” is in high demand since “pubcos” need to ensure their tenants and lessees are adhering to the “tie”, a contract that ties the pub tenant-manager into buying a percentage of beer and possibly wines, spirits and soft drinks, at arranged prices from the owner of the pub.

As well as measuring the amount of beer poured per hour per tap, the technology harvests data via a black box called the EDISbox and discharges it back to the pubco.

A business based on this technology reversed into Comprehensive Business Services in 1999 and three years later was subject to an MBO led by chief executive James Dickson. After three years away from the market’s prying eyes, Scotsman Dickson, formerly of Scottish & Newcastle, Whitbread and Heineken, re-floated Brulines on AIM in October, raising £6.84 million, mainly to pay down debt.

During a frenetic year to March – spurred on by pubcos’ anxiety about the smoking ban – Brulines fitted 4,400 new dispense monitoring kits, taking its installed base to 18,500. Existing customers for its basic product include Punch Taverns (owner of over 9,300 pubs), Enterprise Inns (almost 8,000), Admiral (2,700) Greene King (over 2,000), Scottish & Newcastle (almost 2,000) and Marstons (1,700).

Already the market leader within the tenanted sector, speaking for well over half the market, Brulines is now making a push into the managed sector, as well as the hotels and restaurants space, where the large chains find it difficult and costly to supervise their many hundreds or thousands of bars. This advance comes through its new brand quality monitoring (BQM) system, which allows for the measurement of cellar temperature, line cleaning, temperature at the point of dispense, “throughput” and “flow rate”, although the latter two seem indistinguishable to the inexpert eye. Brulines has a huge 18,500-strong customer base to upgrade and already has an order – from the tenanted sector surprisingly – for an initial 100 for Punch Taverns pubs.

Plans are under way to extend its range to monitoring everything that flows in and out of a pub, from footfall through the doors to soft drinks, fridge temperature, wines and spirits and utilities usage, as well as the amount of cash flowing in and out of games machines. To that end, Brulines now has a subsidiary called Machine Onsite and has bought two-thirds of Coin Metrics, a provider of wireless, real-time data for gaming machines.

Last year’s numbers, almost entirely based on sales of standard dispense monitoring units, revealed a 51 per cent surge in sales to £16.8 million, from which adjusted profits flowed 24 per cent higher to £3.2 million. Cash generation more than doubled to £5.1 million, leaving £4.1 million cash in the bank at the balance sheet date.

This year, house broker Cenkos sees revenues rising to £17.6 million, frothing profits higher to £4.2 million. Based on those numbers, the shares are trading on a forward multiple of 14, roughly in line with this year’s 15 per cent forecast earnings growth, although cash on the balance sheet and longer-term opportunities in overseas markets add further potential into the mix. Investors able to do so should join well-known City names Framlington, F&C, Unicorn and Artemis on the shareholder register.

Brulines	AIM	£30.4m	126.00p	-1.50p
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