Market's toast to Unilever

Croda working to good formula; Osmetech good for short-selling
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The Independent Online

Companies aren't often applauded for being less transparent, but in Unilever's case the market cracked open an extra can of Lipton Ice Tea to toast a reduction in the number of its trading updates.

Rather than letting investors rummage through the larder eight times a year - it currently precedes its quarterly financial results with a trading update a few weeks earlier - the Anglo-Dutch consumer products giant will scrap trading updates except as part of regular results. Thus it hopes to stop its stock from see-sawing so much, and investors will be better able to take the long view. So what is the long view?

Despite some sales disappointment in the first half, which the group palmed off on a litany of trading excuses, Unilever insists its marathon-restructuring schedule is paying off. The 20 lap "Path to Growth" programme has seen the company slim down by shedding around 1,000 brands from its portfolio, more than 33,000 jobs and 130 factories, saving close to €3bn (£2.1bn) en route.

With just over 12 months left to run, the City is getting nervous about what happens next. Niall FitzGerald, the co-chairman, has promised to reveal all next February but in the meantime it will be all eyes down to see if Unilever can hit its full-year sales targets. A slow start, which saw its leading brands such as Dove soap, Flora margarine and Hellmann's mayonnaise grow by 3.1 per cent, means it needs to coax 5 per cent growth out of them in the next six months. That is a tall order, given the tough comparisons in store, but Mr FitzGerald swears it's perfectly doable.

Either way, the good news is that the bad news is already in the price.

The shares, up 8p to 512p, are trading at levels not seen since Unilever began limbering up for "Path to Growth" in 2000. Hints from the group, which reported pre-tax profits down 7 per cent to €2.1bn in the first six months, that it will use its free-cash flow to buy back shares (supporting the price) rather than splash out on acquisitions, was another plus. One for the store cupboard.

Croda working to good formula

Croda International - the chemicals group whose products are used in suncream, air fresheners and lipstick, among scores of applications - showed yesterday that its pursuit of high margin, niche business has held it in good stead throughout the downturn.

The chilly economic winds have certainly sped up its shift into personal and healthcare chemicals, which now account for 56 per cent of sales, partly because Croda has got out of commodity businesses, partly because sales in what remains have taken a big knock. The process of rationalisation that has scarred reported results for the last few years is now nearly complete and the group was able to boast yesterday that debt has come down and profits in the six months 30 June were £20m compared with just £300,000 last time. This despite a slightly reduced turnover of £150.1m, down from £151.4m in the same period last year.

Ironic, then, that just as the stock market is enthusing about a forthcoming economic recovery that will no doubt boost demand for commodity chemicals, Croda should have a little disappointing news on demand for the personal care industry, where manufacturers are running down stocks. The hope is that this is a temporary phenomenon and not a wider battening down of hatches in expectation of a consumer slowdown. Time will tell, but the impact is as yet small and Croda is in good shape.

On Merrill Lynch's reduced forecasts of £37.5m profit for the full-year, Croda is headed for earnings per share of 18.4p. That puts the shares, up 2.5p to 275.5p, on a multiple of 15, which looks about right. Hold.

Osmetech good for short-selling

Osmetech is ahead, and by much more than a nose.

The little company, famed for inventing an "e-nose" that can detect vaginal infections, has transformed its fortunes and its share price with an astute acquisition of a company whose technology measures oxygen in the blood.

No sooner had Osmetech bought the company, called Opti, than its monitors proved useful in the detection of Sars, and sales shot up. Opti should have sales of $7m in a year, marking Osmetech's first ever revenues and giving it cash to put into its more famous nose.

Opti is growing because doctors prefer on-the-spot tests to ones that have to be sent to the laboratory, but Osmetech shares are, unjustifiably, twice the value of rivals.

The nose, which can detect bacterial vaginosis, is being put on to a device that also incorporates tests for diseases including chlamydia and gonorrhoea. With concern over sexually transmitted infections, this could be a winner, especially with the Opti salesforce behind it. But it is early days and the early-2005 launch date may be too optimistic.

This is a good company but at 4.3p - sadly - you are more likely to make money from short-selling the stock than buying it.