THE INVESTMENT COLUMN
There are certain types of business that should never be publicly quoted companies, conventional investment wisdom suggests. They include advertising agencies and PR companies and certainly football clubs - businesses, in short, whose major assets get in their cars every evening and go home.
It is simply too risky, the argument goes, to invest in a company whose prospects can be so radically altered by the whim of a small number of employees. If Eric Cantona were to stamp his foot for the last time and walk out of Old Trafford for good, what then would Manchester United be worth?
Like all good investment saws, however, this one has an equally compelling refutation, the one adopted by Warren Buffett, the legendary American investor, who tries always to invest in companies that have a unique and irreplaceable business franchise. Manchester United, he might argue, shares many of the attributes of Coca-Cola and the Washington Post, investments that over the years have done Mr Buffett proud.
Certainly doubled profits yesterday, up from pounds 10.8m to pounds 20m, confirmed the strength of the Manchester United name. The club's biggest revenue generator last season was not gate receipts but sales of club strips, videos and mugs.
Profits from merchandising soared 65 per cent to pounds 23.5m (pounds 14.2m) as the club cashed in on the previous year's double-winning run. Returns from product sales were boosted by improved sales from all United's other divisions, advertising, conferences and gate receipts, which rose 10 per cent to pounds 19.6m.
Ticket prices rose 13 per cent during the year, an inflation-busting rise that was repeated this season as rebuilding work restricted the supply of seats. In anticipation of these figures, United's shares have had a spectacular run, almost doubling since the start of the year, despite yesterday's 7p easing to 204p. They have quadrupled since the beginning of 1993.
As this season's cup disappointment shows, the quality of a large proportion of any football club's earnings are extremely volatile and unpredictable, and the short-term movements of the share price will always reflect that. In the long run, however, trends within football, and television coverage of it especially, will inevitably mean the leading clubs becoming richer and richer at the expense of the smaller players. A share to tuck away and forget.
Bankers' bible loses some gloss
A quarter of Euromoney's annual profits are made in the month of September alone as international banks and bond dealers gear up for the annual meetings of the International Monetary Fund and World Bank. So it was not surprising the market took yesterday's profit warning badly, pushing the shares 312p lower to 1,083p.
The magazine publisher and its major shareholder Daily Mail and General Trust have made a fortune over the last 25 years out of holding a reflecting mirror to the faces of the finance ministers and central bankers who hold centre stage at these meetings.
The number of pages in the September issue of the magazine is normally a fair reflection of the health of the international banking and investment community. But while this year's issue is as fat as ever, group margins have plainly been sharply squeezed in the second half. Full year figures are likely to be down about 25 per cent from last year's pounds 24m, reflecting restructuring costs as well as a slump in confidence among international banks.
The main problem seems to be in AIC, which operates the conferences, seminars and training services in which Euromoney has been building up its stake over the last four years to 75 per cent. AIC accounts for more than half the turnover, although it is a lower margin business, and has suffered losses in some of its newer offices especially in Western Europe. Regular conference schedules have held up well but attendences at its seminars have dropped off and a significant number have been cancelled in the last few months.
Staff have been laid off in the last couple of months, and the Amsterdam office has been shut. Restructuring costs of around pounds 2m account for part of the setback and AIC is expected to do little more than break even. The board expects to hold the final dividend at 29.5p and still hopes for a good recovery in the coming year, but analysts are concerned AIC has had too much freedom and remedial measures were started too late in the year. In that context, a prospective price/earnings ratio in the high teens is taking a lot on trust and, even after yesterday's fall, the shares are expensive.
Ibstock drops a few bricks
Buying Tarmac's brick manufacturing operations for pounds 70m in June may have been the right move for the medium term, giving Ibstock 20 per cent of the UK market and greater control over pricing, but in the face of the worst housing market for years its timing was eccentric. Only four months later, Ibstock now warns it will have to shut down capacity to ensure that stocks don't get out of hand over the winter.
That news, together with Ibstock's failure to find a buyer for its 56 per cent holding in Caima, its Portugese pulp subsidiary, took the shine off otherwise excellent interim results, which show a threefold increase in pre-tax profits to pounds 14.0m (pounds 4.4m) and a 50 per cent jump in the half- time payout to 0.75p.
The growth in interim profits was admittedly from a pretty low base (Ibstock crashed heavily into the red in 1992 and 1993), but the improvement was across the board: UK ,US and Portugese bricks as well as pulp.
The star performer, however, was the pulp operation, which benefited from sky-high prices to produce an impressive return on sales of 17 per cent and profits of pounds 6.1m from sales of pounds 36.1m. Ibstock says it is selling because of the cyclical nature of pulp, which seems a strange reason when you consider the highly volatile nature of the brick operations it is retaining. In the meantime, profits and cash are flowing usefully.
In keeping with the rest of the building sector, Ibstock has lost about a third of its value since the start of 1994. After yesterday's 1p rise to 72p, the shares stand on a prospective price/earnings ratio of about 10 on the basis of forecast profits before tax of pounds 27m this year.
That is not demanding, especially given the company's recent doubling of its market share, but until the Caima stake is sold gearing remains high and the shares are unlikely to buck the market's dislike of the sector. A forecast yield of 3.5 per cent will hardly improve the City's view.
Turnover pounds P/Tax pounds EPS Dividend
Arcadian Intl (I) 9.4m (5.58m) 0.22m (0.07m) 0.1p (0.0p) 0.1p (nil)
Biocompatibles (I) 1.65m (0.42m) -3.36m (-1.05m) -0.9p (-3.19p) nil (nil)
Bloomsbury Publshg (I) 3.08m (3.13m) -0.39m (-0.49m) -4.55p (-6.02p) 0.68p (-)
James Halstead (F) 72.7m (69.1m) 10.3m (9.9m) 22.75p (22.5p) 8.5p (7.5p)
Ibstock (I) 122.2m (97m) 14.1m (4.36m) 3.78p (1.13p) 0.75p (0.5p)
Manchester United (F) 60.6m (43.8m) 20m (10.8m) 23.4p (12.2p) 4.5p (4.2p)
QS Holdings (F) 24.3m (28.7m) -0.74m (2.11m) -1.26p (3.43p) 1.56p (1.56p)
Silentnight (I) 85.2m (82.5m) 3.72m (4.11m) 5.22p (5.84p) 2.75p (2.75p)
(Q) - Quarterly (F) - Final (I) - Interim
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