Investment Column: Hefty debt leaves C&C looking flat

St James's Place is worth holding on to; Take profits on TTP before next generation arrives
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The Independent Online

Most people see cider as the quaint, hearty refreshment of ruddy-faced West Country farmers, or as the bargain-by-the-litre choice of park-bench tramps and teenagers. But C&C, the Irish drinks company that is planning to float later this month, hopes to convince boozers that cider is a high-quality, premium drink to be enjoyed by the upmarket drinking classes.

Most people see cider as the quaint, hearty refreshment of ruddy-faced West Country farmers, or as the bargain-by-the-litre choice of park-bench tramps and teenagers. But C&C, the Irish drinks company that is planning to float later this month, hopes to convince boozers that cider is a high-quality, premium drink to be enjoyed by the upmarket drinking classes.

Cider? Sexy? Seems hard to stomach, although C&C has achieved as much in Ireland, and its success is pretty startling. More than half of its profits come from cider in the Republic, and its Bulmers brand has more than 80 per cent of the market. It competes with other "long alcoholic drinks", better known as alcopops, and now wants to redefine the UK cider market. But whether Glaswegians, where it is piloting its products, will be as thirsty for a pint of cider over crushed ice is open to question.

This is not the first time C&C has come to market. It tried and failed two years ago, albeit in bitter conditions for IPOs.

As well as Bulmers cider, C&C also makes soft drinks and crisps and has leading brands in Ireland, such as Ballygowans mineral water, Club Orange and Tayto's crisps.

Internationally it is small, but it does have good market positions. There is always a risk that the increasingly health conscious consumer will turn away from its products. And a slowdown in consumer spending, as well as unfavourable tax changes, could hamper the business in future.

The indicative price range was set yesterday at €2.26 to €2.74, giving it a market cap of €800m (£540m). This would mean it beginning trade at about 11 times expected forward earnings. Although C&C has an enviable market position in Ireland, its growth prospects are pretty dull. Cash generation will undoubtedly be very strong, and dividends are forecast to yield a juicy 5 per cent after a couple of years. First though it has some €500m of debts to service until then, and there won't be enough of a fizz for most investors. Avoid.

St James's Place is worth holding on to

The life insurance group St James's Place Capital is, as its posh name might suggest, a money manager for the well heeled. These savvy investors kept their money largely away from the stock market when the bear market was at its most awful, and St James's sales plunged accordingly.

Happily, as investment confidence has reappeared, so have the cheque books for the rich. Yesterday, St James's gave the latest indication of the improvement in sales. The numbers for the first quarter of the year looked dramatic (a 60 per cent jump in unit trust sales; funds under management up 46 per cent to £8.2m; gross fees up 14 per cent) because of the depressed performance the year before, but they so show that this august financial institution has emerged with its position intact. If anything, it has added another string to its bow, having learnt to push products such as critical illness and loss of income insurance for which there is demand in both good and bad times. Sales of these protection products were up 23 per cent in the first quarter.

In total, new business was up 39 per cent. Mike Wilson, the chief executive, felt emboldened to re-state his view that St James's can soon return to annual growth rates of 15 to 20 per cent.

We see no reason to disagree and the share price, at 183p, reflects a lot of optimism on the part of the market too. At 1.6 times embedded value, the company looks very highly valued compared to its peers, even allowing for the fact that its clients are willing to pay up for top quality advice. We said buy at 153.5p last October. Now it is a hold.

Take profits on TTP before next generation arrives

Third Generation, or 3G, mobile phone technology has been just around the corner for so long now, you might be forgiven a sigh when it is cited as the biggest challenge/opportunity facing a company such as TTP Communications.

TTP has in fact been doing very well because of the long delays in setting up 3G networks and making 3G services available to the masses. The company licenses its technology for use in mobile handsets, and royalties from its old-style chip designs have been growing strongly. TTP technology is in 20 million handsets now, mainly in Asia. The company has also had some success licensing intellectual property in other sub-3G telecoms technologies, such as Edge, known sometimes as 2.75G.

But it is time to switch the focus to 3G, where the jury is still out on whether this company can win the impressive market shares it has enjoyed in the past. One of its bigger customers, the handset maker Sharp, has already signed up rival technology for 3G, although this is not an exclusive arrangement.

Over the coming year, TTP is also going to have to work hard to get its ip.access business - which sells small base stations for mini-mobile networks inside buildings - to break even.

We advised readers to buy TTP at 31p in October 2002 and, now at 81.5p on 25 times this year's earnings, it seems a good time to lock in some profits.

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