Unilever is one to hold after a strong run

Blacks justifies its premium; VTR has what it takes to grow faster

Unilever is not what you might call an exciting company. Soaps, deodorants and stock cubes are all decidedly lacking in glamour. But they are the Anglo-Dutch giant's bread and butter and, indeed, in the case of its Wall's ice creams, pudding as well.

But what the company lacks in brand charisma it makes up for stock market appeal. The stock has outperformed the FTSE All Share index by nearly 60 per cent this year and if progress in the third quarter is anything to go by the story isn't finished.

Niall Fitzgerald, the chairman, is just over half way through his five-year "Path to Growth" programme and the benefits are streaming through. This massive restructuring plan has seen the group slim its portfolio down from more than 1,600 brands to just 400 star performers, as well as wring vast cost savings out of its existing businesses.

Yesterday saw Unilever raise its earnings targets for the second time since the summer on the back of higher-than-expected sales of its core brands such as Hellmann's mayonnaise and Lux soap. It comfortably beat its underlying earnings-per-share expectations for the quarter with 18 per cent growth, rather than the more modest 10 per cent-ish rise promised only last month.

Organic growth for its top 400 brands, which benefited from a promised hike in spending on advertising and promotion, was 5.4 per cent. Despite the soggy summer, which hammered ice cream sales, underlying sales at its food division rose by 4.6 per cent, an improvement from 2.7 per cent in the first half. Significantly, the boost from snappy adverts and new products means the group's 5 to 6 per cent top-line growth target looks achievable.

Totting up the figures for the first nine months gives a profit in constant currency terms, which Unilever likes to use, of €3.7bn, up 17 per cent on the year before. Total sales fell 1 per cent to €38.7bn, reflecting product disposals.

The main unknown is whether the group can maintain the momentum set by "Path to Growth" and continue to hit its stringent top-line targets. The €2.5bn Unilever is saving from 2002 to 2004 should help but the company must beware the risk of deflation.

The shares, up 37p at 615p, have had a good run and could suffer from a rotation out of defensives. Now could be a good chance to bank some profits, but the stock remains a hold.

Blacks justifies its premium

Rambling and surfing may seem an unlikely combination but Blacks Leisure has been quick to see both as the increasingly popular pastimes of Britons at both ends of the age spectrum.

The company decided in May it wanted to focus on the areas where it dominates the market – including the anoraks and walking shoes beloved by ramblers and what it calls "boardwear", which includes snowboarding as well as surfing. Consequently, it sold its sports and fashion business, First Sports, to JD Sports.

The disposal netted Blacks what looks like a full valuation for the business, £53m, and has enabled it to concentrate on forging ahead with new openings of its Blacks and Millets stores across the country. The company is set to open 10 stores this year and is also expanding the presence on the high street of surfing-chic O'Neill clothes, which it is the exclusive UK distributor for.

Blacks yesterday reported pre-tax profits ahead of expectations at £3.9m, before goodwill and exceptionals, in the six months to 31 August, up from a £1m loss in the same period last year. The first six months of the year proved much happier than 2001, when Blacks, which has 15 per cent of the outdoor clothes and camping gear market, was hit by the foot-and-mouth crisis.

But Blacks' success extends beyond the fact that ramblers have been readmitted to public footpaths and campers again are let loose on fields. The company believes the way British people are spending their spare time will prove a long-term driver of its business. An awful lot of students these days are going on gap years, needing tents and other camping kit, and Blacks says, rambling is an increasingly popular pursuit amongst our ageing population.

Blacks shares closed up 2p at 221.5p, putting it on a forward price-earnings ratio of 9 times. Blacks has been trading at a premium to other small retailers. But its profits forecasts of £15m for 2003 and prospects for growth, which are largely sheltered from economic downturn, justify the premium. Buy.

VTR has what it takes to grow faster

VTR is Britain's only listed post-production company and it is the biggest operator in London's Soho, where this industry is based. Special effects, repairing faults on the film, making colour and quality consistent, are things that can be done at VTR's studios.

TV, films, music video and advertisements are all put through its facilities, which offer the full suite of post-production services. The company also reproduces films for DVDs and it has worked on the entire Bond series. In future, the company will be heavily involved in the digital distribution of film, which will see films wired to cinemas down a broadband connection.

Yesterday's full-year results were marred by a write-down of VTR's investment in PrimEnt and the numbers came in a little below expectations. Underlying pre-tax profit came in virtually unchanged at £2.75m, for the year ended 31 March. There was a loss of £1.32m, after a £4.1m non-cash item.

The media industry is going through a tough period. Difficult trading in VTR's post-production business was anticipated but more was expected from its less capital-intensive operations, such as its digital asset management subsidiary.

VTR has a good spread of clients in different sectors, which provides a cushion of sorts. And the future digital technology should not require such high maintenance capital expenditure. That should mean that VTR can grow faster with less capital and raise its return on capital employed.

Charles Stanley, the house broker, forecasts pre-tax profits for this year of £3m or 18p a share. That puts the stock, up 1p at 114.5p, on a forward multiple of six, which is not expensive given the digital prospects. Worth a punt.