The Week In Review: Amlin set to pay the price for failure to look beyond Lloyd's

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The Independent Online

The past few years have been short on natural disasters, long on fears about madman-made atrocities. Insurance has been in demand, while insurance pay-outs have been falling. No wonder Amlin, a leading insurer in the Lloyd's of London market, put in a stonking financial performance in 2003. Profits more than doubled to £120.3m.

Can it last? The effect of soaring premiums will continue to show in profits for a couple of years to come, yes. But, while the company talked about "discipline" in its results, meaning the industry is not yet settling for lower premiums in many of the insurance lines it offers, some rates are off their peak.

Amlin is undoubtedly an efficient outfit, focusing on increasing margins rather than chasing new business. But is everyone this sensible? The increase in underwriting capacity since the 11 September attacks means the stock market will soon start anticipating a downturn, even though Amlin can trumpet good returns on capital for another two years.

Amlin is also way behind the curve in creating a non-Lloyd's operation. A dividend hike yesterday takes the likely 2004 yield to 4 per cent, but this is a top-of-the-cycle payout rather than a forever-sustainable one, and the shares are expensive on other measures. Take profits.

BALFOUR BEATTY

The private finance initiative has established itself as the Government's favoured way of getting the private sector to fund large building projects such as new schools, hospitals and roads, and Balfour Beatty has established itself as the gold standard partner for the Government. With interests that span project design, construction, maintenance and facilities management, Balfour is a big enough company to withstand shocks. Network Rail's decision to take routine track maintenance in-house, for instance, barely dents the revenue line. Buy for the long-term.

CATTLES

Despite operating in loan shark-infested waters, Cattles has built a reputation as a responsible lender. The company does not run a credit card business - where individuals can wrack up debts with ease - and still does some door-to-door lending, but it is focusing now on attracting higher earning customers with better credit histories. Despite adding 44,000 new customers last year, the number of loans which went sour stayed at 7 per cent of its loan book. Hold.

CENTAUR

Centaur publishes trade magazines, with titles including Design Week, Money Marketing and The Lawyer. Successful business-to-business publishing depends on the relevant sector having good brands and on having the leading magazine in a "space". Here Centaur scores very well. Revenue growth should be accelerated by the emerging advertising recovery and there is scope for boosting profits by cutting a bloated cost structure. Buy.

FIRST CHOICE HOLIDAYS

For those rare tour operators which operate a flexible business model - leasing rather than owning aeroplanes and only reserving the hotel rooms they think they will sell - scenes such as the devastation in Madrid on Thursday need not mean financial ruin. First Choice can either increase or decrease the number of holidays it sells on the same short notice that its customers give. The trend is up, but it should be okay even if there is a dip in demand. Core long-term holding.

TRAVIS PERKINS

Travis Perkins, the chain of builders' merchants, caters to the British passion for home improvement, serving mainly the "jobbing builder". The company is among the top three in an industry that is fragmented and gobbling up independents to sustain growth. There is also the possibility of developing sites on disused industrial land. Hold.

TAYLOR NELSON SOFRES

Taylor Nelson Sofres, the market research and polling group, transformed itself last year with the £230m acquisition of NFO, its rival in the United States. Market research tends to be cyclical so the extra exposure to the world's biggest economy is a positive as the US starts to recover. Cost savings from the deal are already double the anticipated level. TNS shares are attractively priced. Buy.

REDROW

Redrow has done well from the runaway housing market. But operating margins - which reflect the jump in valuations between Redrow buying land a few years ago, and selling the properties it has built - are going to contract. Redrow is going to have to rely on building more houses to keep profits growing. With the housebuilding industry entering a more difficult phase, it is time to take profits.

JOHN WOOD GROUP

John Wood, the oil services group, doesn't expect much growth this year. Oil giants scaled back plans to drill in the Gulf of Mexico and other deep water sites, in favour of easier, cheaper pickings in Russia. That means less lucrative work designing rigs. And maintenance of gas turbines for American power generators has suffered because of the generators' dire financial straits. Wood shares look pricey.

CHORION

Noddy is the star turn in Chorion's portfolio of characters, which includes Miss Marple, Hercule Poirot and, soon, the Mr Men. Investors must remember that it takes hard graft to resurrect these characters. There have been disappointments and Chorion is unable to tie up a significant deal to get Noddy on air in the US. Buying the Mr Men, for about £25m in shares from the Roger Hargreaves estate, is the easy part. Too risky.

SHIRE PHARMACEUTICALS

Shire Pharmaceuticals plans to launch 11 new drugs between now and 2007, but none are likely to match the success of Adderall, its treatment for hyperactive children. It needs a big acquisition. Opportunities are few and Shire has more rivals than ever who are equally desperate to get their hands on new products. The shares price in a faith that the company will be able to advance without setbacks. Avoid.

French Connection goes striding in

The fashion chain French Connection rarely puts a foot wrong. This, it says, gives it the confidence for a concerted expansion push on all of its fronts - retail, wholesale and licensing - and in all countries.

Although it's the group's 61-store high street presence, helped by its even stronger advertising slogan, fcuk, that leaps to mind when you think of French Connection, most of its recent growth has come from its wholesale arm, which supplies the company's merchandise for sale in other people's stores.

Doubling its 25 stores in the United States over the next five years will help its overseas growth to continue, but it is the opportunities posed by wholesaling to US department stores that should ensure its acceleration. Joint ventures and working with local partners will share the risk of opening new stores in Hong Kong, Greece, Thailand and the Philippines.

Throw into the mix a few deals to license the brand to other product manufacturers - its fcuk fragrance, for instance, is being launched worldwide - and you have a group that is about a lot more than just selling trendy tops to the Brits.

Stephen Marks, the founder and chairman, certainly seems happy to put his money where his mouth is. He controls 52 per cent of the group's shares. And given the stock's stellar performance since the column tipped them last year, there seems no reason not to follow his example. Buy.

The above are a selection of recommendations from the daily Investment Column

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