The Investment Column: Old Mutual has finally turned into thoroughbred performer

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The Independent Online

Old Mutual, the South African financial services group, has long suffered from an image problem with UK investors. With the vast majority of its revenues coming from its home country - a market which UK institutions neither understand, nor have the inclination to understand - it has often been viewed as little more than a risky bet on the South African rand.

Although its purchase of UAM in the US six years ago gave the company another leg, London investors remained reluctant to give the company their full backing until it made the acquisition it had promised in the UK.

When Jim Sutcliffe, the towering chief executive, came on board in 2001, he was all too aware of this pressure. First, he chased asset managers, then he pursued closed life insurance books - but by the middle of last year, he still had nothing to show for his efforts. Although he joked that if he was ever successful, he'd be worried he'd overpaid, the City became sceptical that a deal would ever come at all.

Five years and a lot of fruitless talks later, Mr Sutcliffe has finally come good on his word - pushing ahead with its purchase of Skandia, the Swedish life insurer, in spite of fierce opposition from many of the company's shareholders. The result, it has become clear this week, is a 70 per cent stake in a group which has an extremely competitive position in the UK market, complementing Old Mutual's existing businesses, plus exposure to Scandinavia, Latin America and Asia.

Although the group would ideally like to have snapped up the full 100 per cent, it has a large enough stake to steer the company where it wants - and has not had to shell out the full £3bn that would have been needed for a total buyout.

The acquisition will boost earnings from an early stage, and there are also some synergies to be had in the UK where the companies both own prominent businesses serving financial advisers. In the weeks since the deal has looked a certainty, the company's shares have already climbed by a third, but they still look cheap at less than 10 times the earnings we expect for 2005.

Mr Sutcliffe looks to have finally succeeded in turning Old Mutual from a three-legged horse into a thoroughbred. Buy.

JD Sports profits from demise of rival Allsports

There's little so fortuitous as having a competitor collapse just as you are gearing up for your busiest trading period.

And not only did the demise of the sports clothing retailer Allsports last year take out a direct rival to John David Group's JD Sports chain, but JD also snapped up a number of Allsports stores, which it used as clearance outlets. These will be loss-making for a few more months, but should benefit earnings thereafter.

So JD's trading results have rebounded after the scare over the summer and autumn, when consumer confidence was at its wobbliest. The chilly weather meant padded jackets and boots flew off the shelves. Between October and the start of January, sales at the 430-strong chain were up 3.5 per cent, a stark contrast to the 7.5 per cent decline reported at the last update in early October.

It has not had to discount so much, either, and the group is hopeful of beating market forecasts.

JD is trying to set itself apart from rivals like JJB Sports and Sportsworld by selling fashionable sports-wear and offering exclusive product lines with manufacturers such as Puma, although its standalone fashion stores, including RD Scott, performed poorly.

Takeover speculation has swirled since Pentland, the owner of the Speedo brand, bought a 45 per cent stake in the company for £100m last summer. While it remains a mystery why Pentland would take such a large stake if it was not interested in bidding, such a move does not appear imminent. The other big shareholder, the Sportsworld owner Mike Ashley, has 16 per cent, and no one knows his plans.

Valued at under 10 times next year's earnings. the shares are worth holding.

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