Bottom Line: Success on the field rules football investments

EVER since Tottenham Hotspur broke the ice with its flotation in November 1983, investors have failed to fathom whether football clubs are any more than places where thousands of people spend Saturday afternoons. In short, are they stock market businesses?

Martin Edwards and Robin Launders, respectively chief executive and finance director of Manchester United, tendered some forthright business arguments yesterday. Judging by the share price, up 10p to an all-time high of 412p, their voices were heard above the noise of the previous night's thumping of title challengers Norwich City.

Having risen by 44 per cent to pounds 4.6m pre-tax at the half way stage, the company's second half looks promising. The 46 boxes at the revamped Stretford End have been sold and United should pick- up more than pounds 800,000 in royalties from BSkyB from finishing in the top three of the Premier League.

Next year looks just as encouraging. Ground capacity will rise with the entire Stretford End open for business. TV and attendance income from playing in a European competition looks guaranteed.

In football terms United is on a roll and its share price reflects that. But how many people would be prepared to splash out more than pounds 100 entertaining each guest per match in one of the executive boxes if - and it has happened before - the club was relegated? Football clubs, however well run, remain dependent on their sporting success.

Millwall is trying hard to diversify, but this has so far done little for its share price. It emphasised its changing nature yesterday - while launching a three-for- two pounds 3.2m rights issue - by changing its name to New London Stadium.

The football club retains the Millwall name, but it operates merely as a subsidiary. As a centre of profits (or losses) football will line up alongside concerts, festivals and other sports events. More important, direct income from events will be boosted by revenue from refreshment sales, merchandise retailing and box office services.

Millwall needs the rights issue cash to complete the construction of the new stadium, from which the refocused company will operate. Completion was meant to be funded by additional borrowing, and it is clearly unsettling to shareholders that the bankers would not advance short-term borrowings.

Since flotation at 20p in the autumn of 1989 the shares drifted lower and lower to touch 1.75p in March 1992. Excitement about the new stadium lifted the stock to 5p before falling back to 3.75p on yesterday's news. The cash call, underwritten by the stockbrokers Townsley, is pitched at 2p.

While broadening the base makes Millwall a more tempting investment, it is still a high-risk investment. Shares in Manchester United have only recently risen above its flotation price of 385p in June 1991 but they look set to keep on rising for a while longer yet.

TIP Europe left with little choice

LONG-TERM investors who bought into TIP Europe at 125p when it came to the market in 1988 must feel tempted to reject their directors' advice to accept GE Capital's bid at just 42p a share.

But TIP's interim results, released yesterday, suggest they have little choice but to accept. Pre-tax profits slid 25 per cent to pounds 2.3m, gearing is more than 160 per cent and just as the group appears to have weathered the UK recession, its important Continental markets are turning down.

The fact is that GE, which owns TIP in the US - from which TIP Europe emerged as a management buyout in 1986 - wants to re-enter the European trailer rental market.

It almost certainly told TIP's management that, if they didn't sell up, GE would arrive anyway. With its vast resources it would have made life very difficult for TIP.

The only way forward for the business was to sell it to a big brother such as GE, which can invest in the new assets essential to an equipment rental business. GE, as a triple-A-rated group, can borrow the necessary capital at half the cost to TIP.

The price is not generous but it is pitched well above Monday's closing 25p and it is the only bid on offer. If no other bidder emerges, accepting the offer is the only sensible option.