Hang on to Unilever for its defensive qualities

Sportingbet is a risky gamble; Croda more attractive than Elementis

Unilever has seen the weight come off faster than dieters using its SlimFast brand. It began a massive restructuring two years ago, and is trimming its portfolio from more than 1,600 brands to just 400 star performers. The hope is that profits will get fatter. It reckons sales of the remaining products – ranging from Surf washing powder to Ben & Jerry's ice cream – will rise 5 or 6 per cent a year.

That is the plan, but Unilever's progress can be erratic. The group updates the market eight times a year, and has an uncanny knack of translating caution in quarterly trading statements into outperformance at results time. Yesterday (results time for the three months to 30 June) redressed the caution of the last trading update, and the Anglo-Dutch group even upped its earnings forecasts for the rest of the year.

There were also signs in the quarter that Unilever's volley of new products was bolstering sales. The group is spending more on snappy adverts to back up new launches such as Lipton Tea in the UK.

Sales growth was 4.4 per cent, up from the first quarter but below 2001's 5.1 per cent. Sceptics worry that too much of this increase came from price rises in deflationary markets such as Latin America and not enough from selling more jars of Hellman's mayonnaise, bars of Dove soap, and cartons of Knorr soups.

Totting up the figures for the first half of the year gives a profit of €2.3bn (£1.4bn), up 12 per cent, while total sales fell 1 per cent to €25.4bn, reflecting product disposals. The shares have had a raw deal of late, after being thrown out of the S&P 500, America's equivalent of the FTSE 100, but after yesterday's results they soared 9 per cent to 562.5p.

Long term, Unilever needs to show that it can drive enough top-line growth to sustain profit growth into the future and that progress is not just coming from cost cutting. In the meanwhile, given that people will always need to wash, eat and clean, Unilever is one of the safest stocks to own. With a dividend yield of 3.3 per cent, it is worth holding for now.

Sportingbet is a risky gamble

Place your bets. "Evil Knievil", the notorious short seller Simon Cawkwell who has amassed millions gambling that share prices will fall, thinks Sportingbet's shares will collapse. Nigel Payne, chief executive of the online gaming company, thinks yesterday's three-month results show the group is in rude health and will confound Evil and his followers who have trashed the share price in recent months. Only one can be right.

The arrival of 50,000 new customers to Sportingbet's brands around the globe, mainly Sportsbook in the US, was the highlight of the first quarter. It now has 608,000 people on its books (although some may not have placed a bet in almost two years). But turnover in the first quarter of its financial year wasn't great, at £248.1m, and losses before tax were £1.5m. Mr Payne says the period is the quietest in its year, since it falls outside the American football and European soccer seasons. The figures did not show how much of the £17.7m cash on the balance sheet actually belongs to Sportingbet, an omission which allows bearish stories to flourish. Most of the cash is from punters, who have to deposit money in order to play. But those in the loop in the City were told £7m is Sportingbet's free cash.

The company has tied up a £20m loan to cover the remainder of the payment for Sportsbook, which it bought last year. But other clouds hang on the horizon. Since online gambling is illegal in the US, the authorities there are trying to make it much harder for punters to place bets with Sportsbook, which is based offshore.

The shares are high risk and, down 4.5p to 75.5p yesterday, they are unlikely to recover much ground until Mr Payne can show solid results from the football season.

Croda more attractive than Elementis

There have been big upheavals in the chemicals sector, but a couple of companies seem to be coming good, despite the drag of the global economic slowdown. Croda International has been shifting its focus away from industrial chemicals to supplying specialist materials for use in toiletries and vitamin pills.

This has involved painful factory closures, and the restructuring wiped out profits in the first half of this year. But the process is nearing completion and sales into the personal and health care markets were the most impressive part of yesterday's figures.

On 14 times earnings, the shares, up 3.5p to 245p, look good value given the scope for upgrades to forecasts.

Elementis, which posted a first half-profit up 48 per cent to £4.6m yesterday, has seen its shares rise by a quarter to 30p since this column tipped them as a recovery play back in March. It is continuing its focus on squeezing cash out of its business and is relocating production in the underperforming rubber division to the Far East. But it is also now signalling plans for acquisitions to bolster future growth.

Elementis is more geared to the economic cycle than Croda and its shares are due a pause until the state of the US economy becomes clearer.