The Week In Review: Growth lobbying can inject new profits into a drugs giant

Alliance Unichem, which has Kenneth Clarke, the former chancellor and health secretary, as deputy chairman, runs Moss, the UK's largest chain of chemist's shops. It is also among Europe's biggest drugs wholesalers, the middleman between the pharmaceuticals manufacturers and the pharmacies.

The company requires all the political lobbying skills it can get its hands on, since upward-spiralling health costs in Europe are forcing governments to hunt for savings, and that can mean a lot more regulation of drug prices and wholesalers.

It lobbied so well in the UK that the Office of Fair Trading's plan to throw open the pharmacy market to supermarkets has been substantially watered down. Instead, there are significant growth opportunities from using pharmacists to offer simple advice and some health monitoring, as the National Health Service tries to unclog doctors' surgeries.

Alliance UniChem still has big holes in what could, one day, become a truly pan-European player. There are moves to push the wholesale business into eastern Europe. And, on the retail side, France and Germany are yet to deregulate to allow chain-ownership of pharmacies. These long-term opportunities more than counterbalance the regulatory threats. Buy.

SCOTTISH AND NEWCASTLE

Scottish & Newcastle, the historic brewer, is pumping millions of pounds into advertising its brands and it does seem to be influencing people's drinking habits, even if it means S&N's operating profits are flat. Its top four brands, Foster's, Kronenbourg 1664, John Smith's and Strongbow cider, are on an improving sales trend in the UK, and cost savings across the group will help pay for this productive marketing spending to increase further. With most of the good news now priced in to the shares, there will be better times to buy.

PROVALIS

Provalis launched an innovative diabetes blood test two years ago, but despite there being 9,000 of the machines in doctors' surgeries, sales of the testing cartridges have plunged. The system has not impressed users, who want something easier to administer. Provalis promises a second-generation version, G5, this year and some analysts hope for a boost to the shares if Provalis signs a distributor for G5 soon. Investors might by now be weary enough to want to wait for real sales numbers next year. Sell.

RAC

Driving growth at RAC has been the company's decision to follow the lead of Centrica, owner of the AA, by attempting to sell other services - be they financial and legal help, or windscreen repair - to its database of customers. Unfortunately, the City was unable to raise its profit forecasts for the group this week because, with problems at its auto windscreen repair arm, RAC is clearly not firing on all cylinders. At this stage, it would be worth taking some profits.

BRAMBLES INDUSTRIES

Brambles Industries' sheer size in the UK and Australia makes it a natural first point of call for businesses needing crates to transport goods. Profit warning has followed profit warning at this company but a big programme of pallet repair is complete in the US, and restruct- uring in Europe continues apace. With trade picking up again, and expansion in Europe and the US on the medium-term agenda, the shares may be a profitable gamble.

REED HEALTH

Concerted efforts to reduce the National Health Service's dependence on expensive temps from the private sector prompted a profits warning from Reed Health, one of the biggest suppliers of agency nurses. While procurement policies in an increasingly efficiency-conscious health system are still in a state of flux, Reed shares are to be avoided.

BUNZL

Bunzl has made its shareholders a lot of money from the mundane business of supplying supermarkets and caterers with plastic packaging, carrier bags and mops and buckets. Its customers find it a useful one-stop-shop for these sorts of everyday consumables. But now is not the time to be buying Bunzl. The falling dollar is constraining the sterling value of earnings and, without an acquisition, it seems only share buy-backs will keep earnings growing this year. Hold.

COLT TELECOM

Colt Telecom's services and 32 city telecoms networks provide businesses in the UK and continental Europe with an alternative to BT and the other former monopolies. The company has £1bn of bonds falling due between 2005 and 2009 which it must repay while continuing to invest in its network. This is a loss-making business and 2004 will be another year of cut-throat competition in an over-expanded market. Sell.

UNITED BUSINESS MEDIA

United Business Media says it has passed the "inflexion point" at which trading improves, following a gruelling recession. Full-year results showed a rebound in the second half. The company has three divisions, business-to-business publications, market research, and PR Newswire, a service that puts out company announcements. The market saw the turnaround, but there is still upside. Buy.

EASYNET

As the broadband story has gathered momentum, so too has Easynet's share price which has doubled in 12 months. The company provides business customers with high speed internet access, web hosting services and internet consultancy. Analysts aren't forecasting Easynet to make a profit until 2006 at the earliest. The risks attached to investing in more exchanges and the rally in the shares offset the improved prospects, making the stock a hold.

HILTON

The group's Ladbrokes betting and gaming business produced another good year, with operating profits up from £149.3m to £214m. Hotels proved disappointing, as operating profits fell from £212.1m to £146.5m. At 14.7 times this year's earnings, the shares are fully valued, especially as there is still no prospect of a demerger.

Tobacco share has not run out of puff

Shares in British American Tobacco, the maker of Pall Mall and Dunhill cigarettes, have shown no signs of running out of puff in the past year. Thanks to a couple of, er, Lucky Strikes, they are up a third since we wrote positively on them last April.

A month later, the US tobacco industry won a famous court victory, overturning 2000's record $145bn (£78bn) damages award to Florida smokers.

And in October, BAT said it plans to merge its US subsidiary, Brown & William-son, with its rival RJ Reynolds, a deal that may lighten the litigation risk that has hung over BAT shares. There are also a whopping $500m in cost savings to be squeezed out of a merger.

The declining attractions of smoking in the West were exacerbated last year by tax rises in continental Europe that drove customers to cheap brands which are less profitable for BAT. Competition is also intense. So it is leading the quest for new smokers in the developing world. The company generates so much cash that it can be lining up bids for assets in Bulgaria, Turkey and other countries at the same time as buying back huge parcels of its own shares to boost the "earnings per share" figure on which its share price is valued.

BAT shares are not noticeably overvalued and, with a 5.4 per cent dividend yield, are still a worthwhile purchase for investors who as concerned for dividend income as capital gains.

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