Investment: Problems are not over for United Biscuits

UNITED BISCUITS shares have been such a dismal performer in the last few years that good news has become a rarity from the McVitie's to Hula Hoops snacks group. The shares have underperformed the market by a staggering 66 per cent since 1993. The company has retreated from a bloody battle in the United States, cut its dividend and decided to concentrate on the UK and Europe instead.

But maybe, just maybe, there is a light at the end of this very long tunnel. UB shares enjoyed a rare jump yesterday as the company reported a 14 per cent rise in pre-tax profits to pounds 51.2m. According to Eric Nicoli, UB's long-serving chief executive, the company is now making progress on the final, "recovery" phase of its three-stage plan for reconstructing the business.

But look more closely at the figures and it becomes clear that much still needs to be done. The 14 per cent profits rise was due mainly to a lower interest charge. Group sales are virtually flat, as are operating profits.

The management appears to be doing all the right things. UB increased its marketing spend by pounds 12m in the half, and supply chain efficiencies should free up further cash for marketing spending. UB is concentrating on its top brands like Hula Hoops and Penguin, as well as developing new products and rolling them out internationally.

The problem is that UB still has a long tail of under-performing brands which dilute the figures. And businesses such as the Young's fish division are still prone to one-off problems. This time it was a strike by Icelandic fishermen.

A demerger of the UK foods business from the McVitie's snacks operation might be considered at some stage and there is always the possibility of a bid now that UB is a simpler business. On analysts' forecasts of pounds 114m for the full year the shares - up 8p to 203p - trade on a forward multiple of 12. That looks reasonable value for investors not frightened off by the past.