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Business Analysis & Features

Unilever looks high enough for now as economic downturn trims profits

While that may seem pretty comprehensive, five years ago Unilever had more than 1,600 brands. A plan to reinvigorate sales has led to the sale of 1,200 brands, involving the disposal of 140 companies and 50,000 jobs. The company announced yesterday the completion of a deal to sell yet another part of its stable, its upmarket fragrance business. This has been sold to a US consumer goods company, Coty, adding $800m (£455m) to its coffers.

The disposal programme, part of Unilever's five-year Path-to-Growth plan, has raised more than €6bn (£4bn), helping to halve Unilever's debts. No bad thing, but the growth part of the plan failed. Instead of the 6 per cent annual growth it was meant to deliver, the company managed only a 0.4 per cent lift in 2004 underlying sales.

Enter Patrick Cescau, who replaced the long-standing Niall FitzGerald and has been more general in his approach to targets. He saidPath to Growth was a "straitjacket" that allowed the company to fall out of touch with its customers. Slim Fast, for example, was a market leader, but when the Atkins diet craze swept the US and UK, Unilever did not adapt quickly enough. The first quarter of 2005 showed some improvement in growth, but over the next five years, the company does not expect to outperform market growth of 2 to 4 per cent.

No matter how much vigour M. Cescau brings to the company, it still faces a consumer-spending downturn. Most of the eurozone is in the grip of a curb on spending, while unemployment and economic uncertainty remains high. The UK is also feeling a squeeze, and most retailers have reported a slide in sales.

Undeniably, Unilever has a powerhouse of brands, 11 of which are truly global. Its Pro.activ products, for example, which supposedly reduce cholesterol, tap into the market of health-conscious consumers. But at 551p, about 15 times 2005 earnings, Unilever's shares look fully valued.

Potential for new rail contracts makes growing Mouchel Parkman a good bet

While many of Britain's best known support services groups have found themselves struggling over the past couple of years, Mouchel Parkman, one of the sector's smaller firms, has been busy making the most of its competitors' misfortune.

Yesterday, it announced it had won yet another contract - from Rochdale Metropolitan Council - promising at least £187.5m of revenues over the next 15 years, and taking Mouchel's current order book past £1bn for the first time. The deal represents the company's biggest individual contract win to date, and adds to a collection that also includes the maintenance of the M25.

As well as delivering strong organic growth, Mouchel has also been on the acquisition trail, snapping up the engineering services company Servigroup at the end of May.

But Mouchel's shares have not exactly shot the lights out in recent months. Although the stock has risen more than 15 per cent since this column last tipped it 15 months ago, the shares have struggled since reaching a high of more than 282p in February this year. Trading on a price of about 18 times next year's earnings, it is not a bargain.

But Mouchel shares are a solid bet. With most of its expected revenues for the current year already in the bag, and some great potential for new contracts on the London Underground and elsewhere in the UK rail industry, it continues to look one of the best placed companies in its sector.

Trading fears dampen spirits at Ultimate Leisure

Ultimate Leisure, the owner of 31 nightclubs and late bars in the North of England, said yesterday competition in the sector was taking a toll on the group.

A statement from the company revealed trading had worsened since it updated the market in April. Ultimate said it did not expect things to improve, and profits for the coming year were likely to be "materially less" than the financial year just ended.

In light of this, the group's house broker, Brewin Dolphin, expects profits for the year to June 2006 to fall one-quarter on 2005 results.

Ultimate's problems stem from the fact that drinkers have had a growing army of outlets to go to, and while Ultimate's customers' spend per head has remained at roughly the same level, customer numbers have fallen.

Weaker consumer spending power is also sending revellers home before they get to Ultimate's late-night venues. Worse still, recent licensing reform will allow more operators to stay open later, resulting in even more competition for Ultimate.

Still, all its properties are freehold-owned and its assets are valued at about £65m. But this reliance on freehold property is hampering its growth. It had been opening three or four bars a year, butnow it prefers to spend on existing estate to try to win back customers.

Takeover speculation is rife. Dawnay Day, the investment vehicle owned by Guy Naggar, who recently took the Chez Gerard restaurant group private, owns about 21 per cent of Ultimate and may stage a takeover. For this reason, hold on to its shares.