The Week In Review: Giant-killer Xstrata looks to mine rich new vein in assets

Xstrata is a work in progress. It floated in 2002 after buying many mining assets and the chief executive, Mick Davis, is intent on building a diversified group to take on the giants of the industry.

After the transforming $3bn (£1.65bn) acquisition of MIM last year, he has extended the portfolio of assets from thermal coal into coking coal and copper, and reduced dependence on South Africa. Now he is looking in South America for a player with big reserves of copper.

On current reserves, Xstrata runs out of this increasingly precious metal next decade.

The acquisition of MIM is bedding down well, Xstrata's results showed recently, with efficiency improvements coming through. The demand for copper from China has pushed the metal's price sky-high this year, and Mr Davis said high commodities prices are set to continue next year.

While the Chinese growth story is a long-term one, there could be a wobble next year and there may be better times to buy into the mining sector. Xstrata is returning cash to shareholders rather than rushing to acquisitions at a possible cyclical peak. But the shares, at close to their best levels since flotation, still sit at an appropriate discount to the less risky miners.

NICHOLS

Will the sound of Matt Lucas, of Little Britain fame, singing V-I-M-T-O to the tune of D-I-S-C-O be enough to make the historic fruity drink cool? It is difficult to imagine so but Nichols, the company which makes it, does not need to have a cool brand to be a cool investment. Vimto is holding its market share and is also big in the Middle East. Nichols has been conducting long-overdue restructuring these past couple of years, with redundancies and, now, a plan to sell its less profitable foods business, which is too small to stand the price cuts demanded by its customers, including the supermarkets. The shares promise a dividend yield of more than 6 per cent, underpinned by strong cash flows from the soft drinks business. Buy.

THE INNOVATION GROUP

Eighteen months on from the rights issue that rescued The Innovation Group from dot.com bust, the software group is a focused, cash generative company. It has scaled back to concentrate on software and services which help improve efficiency in insurance and related industries, and has an impressive list of clients which includes Royal & SunAlliance, Axa and BMW. But the company is not growing. It has lost a significant customer for its outsourced insurance services division, and it is proving hard to replace the work. We told investors to hang fire in February when the sales recovery was in its earliest days. The slower than expected progress since then justifies keeping one's powder dry still.

XENOVA

Xenova thinks it might have found a vaccine to cure addiction to cocaine and smoking. But in a stock market sector that swings between hype and despair, investors need to wait for trial results or a licensing deal to a big drug company before judging if a biotech venture has hit the jackpot. Xenova is the UK biotech industry in microcosm, a dogged survivor which has seen a series of products fail to meet their promise but which has done enough in the way of mergers, cost cuts and fundraisings to give it cash for two more years at the casino. Results from trials of its brain cancer drug won't be out for more than a year, so gamblers need not hurry to place their bets.

OLD MUTUAL

Since listing in London in 1999, Old Mutual has been on a chaotic shopping spree in pursuit of its aim of creating a financial services business which is balanced evenly between the UK, US and South Africa. Today, it still generates about three-quarters of its profits from its home market, and the acquisitions it has made in the UK and US have proved unsuccessful or difficult to integrate. It is a collection of so many businesses that one is left wondering if even the board has its finger on exactly what is going on. With the potential to spring a nasty surprise, this stock is one to avoid.

MARCONI

Mike Parton, the chief executive, has arguably done the easy bit in paying down debt and re-focusing the historic telecoms equipment company. Now he has to deliver a compelling growth story. Currently he is sticking to his prognosis of low, single-digit sales growth for the year to March 2005. While this is no doubt prudent, the share price will be moribund if it doesn't get more exciting than this. The most obvious and visible source of medium-term growth is investment by telecoms operators, such as BT, in new network technology. When orders start to flow over the next few years, Marconi will benefit in terms of sales, but just how profitable these orders will be in an intensely competitive market, is another question. Avoid.

PIPEX COMMUNICATIONS

From the man who brought you tie-dye T-shirts in the Madchester era, and created ukbetting, the sports websites company, in the dot.com boom, comes a new venture for the broadband generation: Pipex Communications. Peter Dubens has turned Pipex into the number five broadband service provider in the UK, thanks to seven acquisitions. It is also adding 2,000 broadband customers of its own each month. Pipex is one of The Independent's stock tips for 2004 and we are still confident that new buyers will make money.

MORGAN SINDALL

Affordable housing is one of those terms, like military intelligence, that invites a grim joke. But it is also a term that politicians of every hue have rallied behind, with myriad schemes to promote the building of cheap accommodation. And it is the foundation on which the construction group Morgan Sindall, which sullied its reputation with a profit warning in 2002, has rebuilt its standing with the City. It builds the mixed housing projects which include council rental accommodation alongside some low-cost homes for sale. With a 4 per cent dividend, the shares are a hold.

Gloom clouds Sun's outlook

Royal & SunAlliance faced insurance pay-outs on the 11 September attacks on one side of its business, falling confidence in the life insurance industry on the other, and collapsing stock markets affecting both.

It has been a rough few years for shareholders. Now the company has sold its life insurance business at the bottom of the market, to concentrate on a general insurance industry that looks to be past the top of its cycle. It is not going to get much easier even from here.

Reshaped RSA is a well diversified general insurer, operating in both the commercial and personal insurance markets across the UK, US and Scandinavia. But continued uncertainty in the US, where RSA's costs have soared, could dog the group for some time. Asbestosis claims continue to flood in, and it is unclear whether RSA will be forced to pay yet more for the New York World Trade Centre loss.

While the company's capital position looks much more stable, thanks to the £850m sale of the life business last month and a £960m rights issue at 70p last year, there is now the threat of tough competition leading to falling insurance premiums. This could eat into RSA's currently healthy margins.

Management is confident premiums will stay high, if not at their high point, for a while to come, and after the recent drift in the group's share price RSA is arguably undevalued on a shorter view. For those who are looking to exit there could be a better opportunity than at present.

But this stock is not easy to commend for the long term. New investors looking for exposure to the insurance sector should look elsewhere unless they have a very strong appetite for risk.

The above is a selection from the daily Investment Column

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most