Dig in for profit

COAL and investors have been uneasy bedfellows. But soaring energy prices are changing that, lifting shares in

The industry's history is long and troubled. UK Coal's is short and troubled. It was called RJB Mining until Richard Budge quit in 2001.

The economics are being transformed. Imports once undercut home-produced coal hugely. Now imports cost £37 a tonne, while UK Coal has been selling at £30.

It lost £5.8m in the half to June, hit by a dispute and unsettling shifts in production. The full year should broadly break even. But from 2005, profitable new contracts kick in, including a five-year deal with the Drax power station in Yorkshire at close to the world price.

Charles Kernot, at broker Seymour Pierce, expects 2005 profits of nearly £30m for earnings per share of 14.6p.

The real upside is property. Kernot has done an impressive analysis. UK Coal owns 49,000 acres. Kernot values the land at £200m, which could rise to £490m once redeveloped.

UK Coal's market value is just £240m. The other attraction is a 6% yield on a well-underpinned dividend.

Coal mining remains difficult and dangerous with quarrelsome unions. They will want their share of rising prosperity. But there should be enough to go round.

Bondage pain

COMPANY bonds have enjoyed a terrific run for three years amid falling interest rates and rising disillusion with shares. But the party may be over.

Bonds of top UK companies now yield 5.5% or 5.6%, only slightly above the near 5% yield on Government stocks. The cushion is too thin to protect them if anything goes wrong, warn Paul Thursby and Peter Geikie-Cobb who run the Global Bond fund at hedge fund group Thames River Capital.

Thursby says unit trusts and the like have piled £37bn into bonds. But when risks increase, bonds can tumble. The threat of a debt funded takeover of Marks & Spencer was enough to send its bonds sliding.

At the extreme, collapses such as Parmalat trigger huge losses for bondholders.

Thursby told Intelligent Investor that he recalls the painful shakeout of the mid-1990s after bond yields were chased too low. This time, too, interest rates may go higher than markets expect.

Thursby says: 'It has been a great three years for corporate bonds, but yields are pretty low now.'

He thinks 6.5% yields would be realistic and he expects a correction, not a catastrophe. But the warning is timely. Buyers should beware.

Thorntons set for choc treatment

IT is easier to enthuse about chocolate maker Thorntons' products than its shares, which have struggled for years after a string of setbacks.

They held at 165 1/2p after this week's 10% rise in annual profits to £7m, with a same-again 6.8p dividend.

The arrival of executive chairman Christopher Burnett is raising expectations.

He ran brick maker Marshalls with a clear strategy and an eye for 'lifestyle' products. Can he do the same at Thorntons?

Chief executive Peter Burdon has already made a start. The problems are tricky. The Derbyshire factory is huge, but filling it with low-margin supermarket orders is not the answer.

Five years ago, Thorntons made £13m. Since then sales have grown 17% while profits halved. Net margins are under 6%, Swiss rival Lindt's are in double digits. So the prize is large.

The rating of 20 times likely earnings is already high. Market value of £110m is just seven months' sales, but this is one for the patient.

While you wait, holding 200 shares gets you up to £34 of vouchers giving 25% off the chocs. Tasty.