The Investment Column: The barbarians hovering at its gates make Unilever one to buy

Blacks Leisure; Debt Free Direct
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Our view: Buy

Share price: 560.5p (-5.5p)

Unilever proudly announced yesterday that the disposal of its frozen foods division is on track and that it would be sending out a full sale memorandum by the end of the month to private equity firms interested in the business.

However, the consumer goods giant needs to be careful. Today private equity may be content just to pick up crumbs from Unilever's table - the Birds Eye and Iglo brands are estimated to be worth around £900m - but if it does not get its act together, a consortium of VCs could well return with a bid for the whole company.

Yesterday's first-quarter results from the owner of Dove soap, Knorr soups and Sunsilk shampoo clearly disappointed the City. Unilever shares finished the day as the worst performer in the FTSE 100, down nearly 3 per cent. The figures revealed sales growth of just 2.9 per cent, down from 5 per cent in the fourth quarter. Unilever's profit margin was also in retreat, falling 0.2 per cent to 14.8 per cent, as the company was forced to spend more on advertising and promotions.

In Europe, its key market, it is suffering from weak demand. A programme of cost cuts made little difference - they merely offset the effect of higher input prices.

Admittedly, Unilever would be a big bite for private equity to swallow - it is valued at £16bn plus £8bn of debt. In fact, a move on the company from a consortium of VCs would make it the world's largest ever leveraged buyout, beating the £14bn Kohlberg Kravis Roberts paid for the tobacco and food group RJR Nabisco in 1989.

But that does not mean it cannot be done. Private equity firms have never been as rich as they are today. And Unilever is a perfect target for a break-up bid. It has a high enough free cashflow yield (about 10 per cent) to service the colossal amount of money a consortium would have to borrow. The group can also be easily divided up as it trades in clearly defined units that are easy to sell separately.

At 560.5p, Unilever shares trade at a sizeable discount to peers such as Cadbury Schweppes and Danone. This is unlikely to go on for very long. Either its management will carry out the necessary measures to reduce the discount or a private equity bid will. Buy.

Blacks Leisure

Our view: Buy

Share price: 568p (-18p)

"Camping is cool again." So says Russell Hardy, the chief executive of Blacks Leisure. Like a dude on his surfboard, Blacks is riding the new-found wave of enthusiasm for the outdoor life.

As the country's biggest retailer of tents, hiking boots, windcheaters and other paraphernalia associated with the great outdoors, the group is well placed in a niche market that is bucking the wider high street malaise. Its markets are tipped to grow by 5 per cent for the next five years.

Full-year numbers released yesterday showed pre-tax profits rose 5 per cent to £21.4m. Stronger gross margins, boosted by better terms from suppliers, made up for a 3.3 per cent drop in like-for-like sales.

The group, which also owns the old army surplus chain Millets and the surf brand O'Neill, is counting on big new out-of-town stores to drive sales forward this year. It opened five big Blacks outlets last year, and is planning twice as many this year. It rates the larger out-of-town locations better than its prevailing high street units because they provide the space to display all of its camping clobber.

The surfeit of music festivals should ensure healthy demand for its tents, which include funky, exclusive designs from the likes of retro designer Cath Kidson and even Ted Baker.

The shares have soared since we tipped them last autumn but remain inexpensive on a forward price-earnings rating of 14.7. Yesterday's profit-taking provides a good opportunity to fill your rucksacks.

Debt Free Direct

Our view: Buy

Share price: 438.5p (+16p)

Debt Free Direct stock closed at a record high yesterday thanks to yet another bullish trading statement from the debt specialist. It said this year's full-year results would meet expectations and that profits in 2007 would top forecasts by 20 per cent.

Investors can now expect the company to post a pre-tax profit of £5m for the year to 20 April 2006, rising to about £9.6m the following year. It is not a surprising that business is booming at Debt Free Direct. The group administers "individual voluntary arrangements" (IVAs), an increasingly popular half-way house for consumers who have too much debt but want to avoid bankruptcy. And it is experiencing record demand for its services as the UK struggles under £1.1 trillion of consumer debt, £192bn of which is unsecured.

Given such statistics, Debt Free Direct shares should continue their march higher for some time to come. Buy.