Qualiport

Technology & Communications
Friday, 6 November 1998

Qualiwatch search continues

Unilever Results

Results for the nine months to September 1998 were released today for this consumer products giant. For those that don't know, some of their best known brands include Persil, Lipton tea, Brooke Bond, Peperami, Birds Eye and Wall's. Anyway, the market was fearing, not quite the worst, but let's say it was nervous about what Unilever (ULVR) would throw up at them.

As it turned out, the results were better than expected. We all know about the poor summer weather, and that was bound to adversely effect sales of ice creams. People are just not so keen to queue up to get their "99" when it is pouring rain. It must be a strange part of the British psyche.

Because Unilever are listed on the New York Stock Exchange, they are required to report quarterly figures. They don't go into any great depth, but they do allow us to see how the company is progressing. How very nice of them. Unilever is a huge company. When you get to be their size, real growth becomes harder to achieve. Unilever are a company with over £30 billion of annual sales. If they were to grow that by, say, 15% per year for 10 years, they would have to have sales of over £120 billion. That is just not possible for a consumer products company like Unilever.

In the third quarter, at constant exchange rates, sales grew by 1% and normal profits by 3%. This is hardly earth shattering stuff, but it was actually a little better than the market had feared, and the shares gained 19p to 609p. The cash balances continue to surge and now total almost £4 billion. Unilever have a huge amount of financial firepower but have been admirably restrained. They refuse to spend it on any old acquisition -- the target company must fit the Unilever mould and must be available at the right price. The other option is to return the cash to shareholders. This can be done in the form of a share buyback or as some sort of special dividend. I'm patient, just like Unilever.

Qualiwatch

We're on the hunt for 6 of the best companies in the world. I'm going to throw up a few ideas. Remember that we're not looking at or worrying about valuation for the time being.

Technology

This heading encompasses many different types of companies. The US is the heart of technology as we know it, and the biggest baddest (in the eyes of the US courts) company of them all is Microsoft. If you are reading this, there is a good chance you are now using some sort of Microsoft product. I don't need to tell you anything more about them, because Mehmet has done that in his >Ask The Fool series on them.

Technology could also include a great company like Dell Computer. Although they are not the number one computer manufacturer and supplier in the world, they are by far the fastest growing. Dell is a lean and mean cash machine and has taken huge market share away from the leaders Compaq and Gateway.

Then we have Cisco -- virtually all the information on the Internet travels across the systems of Cisco. Amazing, isn't it?

Finally there's Intel, the company that has a virtual monopoly on computer processor chips.

Each of these companies is American, and each is a giant of its respective industries. A portfolio made up of these four companies alone would probably do investors proud when measured over an extended time period.

Telecommunications

Communication is a growing industry. Take the Internet, for example. The growth in that medium has been phenomenal and is forecast to continue in the years ahead. Anyone who is reading this probably doesn't need me to tell them all about the power of the Internet.

At the moment, we access the Internet using some sort of phone communication linkup. Whether it be a land-line at work or down the conventional phone line at home, someone somewhere is making money out of the growth in the Internet.

Love them or hate them, but mobile phones are here to stay. Their use is also growing rapidly. Many forecasts expect the penetration rate to be 50% by 2002. The current rate in the UK is about 17%. That means a lot more mobile phones to upset your peace as you travel on the train down to Cornwall.

The choices for great companies in this sector are varied. On the one hand, we have good old British Telecommunications (BT.A). I get the feeling that their management is getting things right, and they even came out of the failed MCI merger affair with credit. Competing with them domestically, although they also have a strong overseas presence, is Cable & Wireless (CWZ).

The enormous rise in the share price of Colt Telecom (CTM) warrants further consideration. They look to be a well managed company doing all the right things. I don't know enough about them to comment too much further, but I wouldn't mind knowing what all the fuss was about.

And then there are the mobile phone companies. The market leader is Vodafone (VOD), but the Orange (ORA) brand is strong and they are aggressively chasing market share.

The mobile phone manufacturers should also be mentioned under this heading. Nokia of Finland have assumed the leader's mantle from Sweden's Ericsson. Motorola of the US is massive. Those three companies plus our own British Psion (PON) have established a joint venture called Symbian, which will attempt to define the operating system of the next generation of wireless communication devices.

Next Wednesday

We will continue to look at various possibilities from what we consider to be growth industries. In particular, we will look at pharmaceuticals, information technology, and then the pure Internet shares. There are other growth industries that we won't look at. For example, transport is a growing sector, but it is extremely competitive. We may look at the financial sector, although again this is very competitive. We covered UK media companies before we eventually plumped for EMAP (EMA) back in April.

Share picking by sector is not the be all and end all of share selection. For example, Rentokil Initial (RTO) is in the broad support services sector, yet that is hardly thought of as a pure growth sector. Other great companies like them exist outside our chosen industries. However, we should have a preliminary list of about 20 great companies, and from there we can narrow it down to a final 6.

We've already had some interesting suggestions on the Qualiport message board. Go ahead and let us know what you think of the companies listed here and give us your suggestions.

Have a great weekend, Fools.

Bruce Jackson (TMF Googly)

Qualiport Numbers

                           6/11/98 Close

                    Company   Change    Bid
                      EMA     -0.03    10.42
                      IIG      0.08     2.82 
                      MKS      0.03     4.08
                      PIZ      0.03     7.93 
                      RTO     -0.02     3.84
                      ULVR     0.19     6.07 

Qualiport Stocks

Last Rec'd  Total # Company   In At    Current   Change
 19/12/97    783      RTO      2.55      3.84    50.6%
 27/10/98    755      IIG      2.58      2.82     9.3%
 04/11/98    245      PIZ      7.93      7.93     0.0%
 17/07/98    298      ULVR     6.72      6.07     9.7%
 17/04/98    169      EMA     11.85     10.42    12.1%
 11/05/98    368      MKS      5.54      4.08    26.3%

Last Rec'd  Total # Company   In At     Value   Change
 19/12/97    783      RTO    2046.53   3006.72  960.19
 27/10/98    755      IIG    1972.64   2129.10  156.46
 04/11/98    245      PIZ    1966.34   1942.85   23.49
 17/07/98    298      ULVR   2052.54   1808.86  243.68
 17/04/98    169      EMA    2052.57   1760.98  291.59
 11/05/98    368      MKS    2054.11   1501.44  552.67


Cash:                                       £3,958.82
Current Total :                            £16,108.77

Total Invested:                            £16,184.62
Profit/(Loss) :                              (£ 75.85)

Value Per Share

                   Day     Month    Year    History
Qualiport         0.45%    1.72%   33.66%   36.67% 
FTSE 100          0.20%    0.97%    6.92%    9.38%
FTSE All Share    0.22%    1.33%    5.28%    7.49%

For an explanation of Value Per Share accounting, please click here.