The Week In Review: Banks are going for a snip to discerning private investors

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The FTSE 100's 10 quoted banks account for a fifth of the value of the stock market. Familiar high street names each one, they can be a solid choice for the private investor able to make an informed choice between them.

Bank shares are cheap overall, with the exception of Northern Rock, which is a sell. Abbey National is also an outright sell: it is implausible to hope the bank can raise margins when there is growing pressure to give its existing mortgage customers access to the same cut-price deals as new borrowers. Lloyds TSB's dividend yield makes it a buy.

The two Asia-focused banks look expensive, but while HSBC has diluted its focus on emerging markets through the acquisition of Household in the US, Standard Chartered is worth holding for the long term. Royal Bank of Scotland is a core holding in the sector, one of the best managed and most ambitious banks.

Our top picks are Barclays and HBOS. The former is cheap on several measures and ought to gain as the increasingly confident UK corporate sector borrows funds for new investment. HBOS is much smaller in business banking, but in this area, it is making the running in price competition and taking market share as a result.


Stephen Catlin is one of the major figures in London's insurance market, and the company he founded 20 years ago is floating next month. Catlin Group has been one of the fastest-growing insurers, but the industry is in a sweet spot that cannot last. As well as the upturn in premium rates which was accelerated by the atrocities of 11 September, there has been a lull in natural disasters and, hence, pay outs. It is difficult to see profitability improving. The institutional investors who get in at the Catlin float will be paying a fair price for a good company, but there seems little upside for the long-term investor buying the after-market.


BPP is a professional education and training company, offering schools for accountants, actuaries and other financial professionals. The company will benefit from economic recovery. With investment banking recruitment seemingly back on the up, the core financial training business ought to swing back to profit strongly with graduate recruitment in the autumn. And BPP has established a law school in London, where enrolments have surpassed expectations and profits more than doubled in 2003. Buy.


Wyevale Garden Centres has been losing ground to the do-it-yourself sheds for the past few years, so it has set about giving its uninspiring greenhouses a makeover. It hopes people will think of it more as a day out for the family than simply somewhere to pick up the odd shrub. In particular, adding or improving restaurants will help. The shares, though, are unlikely to bloom in the short term. Existing investors should dig in for the long haul, but new ones might want to wait for the improvements to bed down.


Profile Therapeutics has developed a novel inhaler. Instead of delivering a random squirt of a drug when a button is pressed, the device measures how much the user can inhale in each normal breath, and releases the right dose. The company has been a long time finding the right drugs to deliver via the system, but while it is a speculative venture, it is not one guzzling cash. It has a lucrative sideline selling run-of-the-mill respiratory devices. The shares are undervalued still.


Parity is an IT business with three separate divisions: one provides IT advice and sets up new computer systems for business; a second provides IT training; and a third is a staffing business, supplying IT contractors to work on temporary projects. It has been in a mess since the millennial IT spending boom turned to bust. Its pitch now is that, with a spending recovery in its early stages, and having slashed costs to the bone, things are coming together in 2004. Worth a punt.


Costain, the building firm, stared administration in the face in the 1990s, but it has pulled itself back from the brink. The key has been shifting the business away from building contracts paid for with a single upfront payment, where the risk of cost overruns is born entirely by Costain. But 15 per cent of turnover still comes in this way and the company also has a £40m pension fund deficit. Since a resumption of dividend payments cannot now be expected until next year, the shares are too expensive.


IP2IPO, an intellectual property "incubator", has first dibs on ideas from Oxford University's chemistry department, King's College London and the universities of York and Southampton. Inevitably, though, there will be more duds than triumphs in such an early stage portfolio and it is difficult to see returns justifying the company's market value for many years. Avoid.


When businesses need fuses, screwdrivers, semiconductors, engines and other mechanical bits and pieces, Premier Farnell - which has 6 million different products in stock - delivers them overnight. It has little idea from one week to the next what the strength of orders will be and as such it is one of the purest plays on the economic cycle. The shares price in a swift economic rebound, but the 4 per cent dividend yield gives support. Hold.


Derwent Valley buys down-at-heel properties in central London where the tenants are on unattractive short leases, gives the place a revamp, and gets in new long-term tenants, then sells at a profit. A potential bidder was sent packing after offering 800p a share. Given the short-term economic recovery potential, the medium-term possibility of conversion to a tax-efficient investment trust, and the long-term strength of the business model, Derwent is worth considerably more. Buy.

Sit tight for Celltech's arthritis drug

Shares in Celltech, the UK's biggest biotech group, plunged 20 per cent in a day when Pfizer, the world's largest drugmaker, said last November that it would abandon a multi-million pound deal to develop Celltech's promising rheumatoid arthritis (RA) drug. The news didn't initially look like "an unexpected opportunity" for Celltech, but that was how it was being spun by this week's annual results.

Celltech believes there is room for another RA treatment of this class, even though the market will be quite crowded by the time it launches in 2007. The company should sign a new partner by mid-year. More importantly, it now has the rights to develop the product, called CDP870, as a treatment for Crohn's disease, a nasty bowel complaint, and psoriasis, the skin problem.

As with all biotech projects, there are no guarantees that CDP870 really will get on the market, and the drug has only shown equivocal results in Crohn's. But Celltech at least will not have to tap shareholders to keep the work progressing. It can pay for its risky biotech projects thanks to its cash-generative marketing of cough and cold medicines.

Celltech shares look expensive, reflecting optimism for CDP870 and a revival of interest in the wider biotech sector. Risk averse investors will want to wait for clarity on the RA partnership deal before chasing what is, after all, still a long-term story.

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

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