The Investment Column: Umbro sheds its flotation woes

Now's the time to get behind UK Coal - Yule Catto is proving to be a costly cocktail

For a company associated with the "beautiful game", Umbro has had a pretty ugly opening match on the London stock market. In fact, it is already one-nil to the City, which forced the sportswear and replica kits company to slash the price of its shares by one-third. Its venture capital backers also had to scale back plans to cash in on their investment.

For a company associated with the "beautiful game", Umbro has had a pretty ugly opening match on the London stock market. In fact, it is already one-nil to the City, which forced the sportswear and replica kits company to slash the price of its shares by one-third. Its venture capital backers also had to scale back plans to cash in on their investment.

The shares were eventually pitched at 100p when they began trading at the beginning of June, and they have been bogged down in midfield ever since. Yet Peter McGuigan, the former Mansfield Town player who is Umbro's chief executive, put in a good performance at the company's maiden results presentations yesterday, and he may start to win over the sceptics.

The trouble with Umbro is that sales of sportswear in the UK, its biggest market, have come off the boil, and the competition with Nike, Adidas et al is ferocious. The company has launched its new Evolution X range to try to improve matters, but it will be a hard slog.

The latest England away kit, premiered at Euro 2004, accounted for most of the 40 per cent rise in earnings that Umbro posted yesterday. Next year sees a new home strip and, God willing, the World Cup in 2006. And Umbro makes replica kits for myriad other football teams whose products are increasingly finding demand across the globe, particularly in football-mad Asia.

Umbro has spent the past few years sorting out its network of overseas licensees, who are permitted to distribute Umbro-branded clothing, and the better quality and higher-margin deals it has agreed will provide a boost to profits for a few years. The focus can now switch to other areas of the business, and in particular the need to design more trendy, expensive gear to freshen up the brand, and to develop more women's clothing. There is also a new US-wide distribution agreement for football boots and trainers with the mighty Foot Locker which will be lucrative.

The City was right to drive a hard bargain at flotation and is now faced with a share that has a prospective dividend yield of 3.5 per cent and reasonable growth prospects. It is worth a shot.

Now's the time to get behind UK Coal

UK Coal is the symbolic legacy of Thatcherism: the rump of Britain's coal industry inside a private company, whose shares are of primary interest not to mining sector investors but to property speculators.

UK Coal's mines continue to show themselves barely economical. Indeed, in the first half of 2004, they lost £14.2m as costs rose, miners threatened industrial action and the company encountered several production problems.

This should be a low point, though, since the worst of the pits have now been closed. The price of coal has doubled in the past year, and will be reflected in new long-term contracts from next year. In addition, UK Coal's competitive position has improved as shipping costs have made imports more expensive.

Bitter experience would suggest investors should not hope for too much from the coal side, even taking into account government subsidies. The real value in UK Coal lies in its properties, which were valued at £133m two years ago (that is £174m minus the large costs of cleaning up these old mining sites) and which are set to be revalued early in the new year.

The company is sitting on 49,000 acres of land and is only starting to scratch the surface of what could be redeveloped. Rental income from sites turned into business parks was barely £2m in the first half. At Orgreave, near Sheffield, it is seeking planning permission for 3,500 homes and an industrial park, and there are similar opportunities for development across the portfolio.

UK Coal's backers might enjoy the sort of of their investment seen by shareholders in the country's ports operators over recent years. That longer-term prospect should figure larger than worries over the short-term progress of the dividend, which had to be held yesterday. At 162.5p, take a punt.

Yule Catto is proving to be a costly cocktail

Chemicals produced by the Essex-based Yule Catto & Co go into products as wide-ranging as surgical gloves, paints, perfumes and prescription drugs. It is a heady cocktail, and the company is suffering one of its periodic comedowns. Sales of one drug ingredient, the ulcer-busting omeprazole, soared last year on its entry to the US market, but copycat competitors have eroded that unique position and the group's interim profits halved, it said yesterday.

It obscured some progress in the underlying business. Investment in new factory capacity in the Far East, South Africa and Saudi Arabia is helping to expand Yule Catto's geographical reach. And there are 22 new drug ingredients in the pipeline. But margins are squeezed by the rising cost of oil and related raw materials - a problem that won't go away until prices stabilise.

A year ago, we said new investors should wait for the dust to settle on the omeprazole issue before buying in, and the shares are 20 per cent lower at 268.75p. Existing shareholders have had a decent dividend (yielding about 5 per cent) to see them through. But the trouble is they still look a touch expensive on a multiple of earnings and, with raw materials prices moving against the company, it remains prudent to wait.

PROMOTED VIDEO
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
Sport
Lionel Messi looks on at the end of the final
football
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
News
The Swiss Re tower or 'Gherkin' was at one time the UK’s most expensive office when German bank IVG and private equity firm Evans Randall bought it
news
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

HR Business Partner (Maternity Cover 12 Months)

£30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

Business Analyst - London - Banking - £400-£450

£400 - £450 per day: Orgtel: Business Analyst - Credit Risk - Banking - London...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on