The Week In Review: Hyperactive drug gives Shire a boost
Saturday 05 March 2005
Shire Pharmaceuticals is one of
The Independent's share tips for 2005, and it got off to a roaring start.
Shire Pharmaceuticals is one of The Independent's share tips for 2005, and it got off to a roaring start. By the end of January it had cut a deal to license a promising new drug to treat hyperactivity in children, answering long-standing questions over what happens when its existing hyperactivity drug loses patent protection, perhaps early next year.
The shares are volatile and lost half their gains when Canada banned Shire's current hyperactivity drug, Adderall, which accounts for 45 per cent of group sales. It faces a nervous wait to see if Canada's move has affected prescribing levels in the US. But there is a high chance Canada's decision can be reversed on appeal.
Shire describes itself these days as a "pipeline company", although, by its own admission, it needs to buy in a high number of new drugs. Without them it may not still be growing by the end of the decade. There is often tough competition for such drugs, but at least Shire has cash of £760m. It is a higher risk than most FTSE 100 companies, but its shares are worth buying.
This diverse specialist engineering company makes parts for civil and military aircraft, and other items including "counter-measures" (things flown or thrown from aircraft to decoy enemy missiles) and remote-control drones used for target practice. Civil aircraft work ought to continue to grow. But military spending cuts are high up the agenda now in Washington, and Meggitt can only hope that fewer new planes will mean more maintenance work on older ones. Hold.
This financial services group is exposed to currency and political risk, as well as the dangers of a hiccup in the restructuring of its South African bank and questions over its ability to do a useful deal in the UK. Old Mutual shares seem a little ahead of events. Wait.
JURYS DOYLE HOTEL
Shares in Jurys Doyle Hotel have had a strong run in the past year as investors warm to the roll-out of its native Irish hospitality around the UK. Its Jurys Inns are aimed at the cosmopolitan budget traveller, located in city centres with high quality fittings and a contemporary design. There is further room for expansion in the UK. Hold.
Have confidence that the housing market will avoid a crash and share prices will stay on an upward trajectory. Persimmon is one of the most highly-valued of all the housebuilders, but that is because it is one of the biggest and best-managed. It is still very cheap relative to the market. Hold.
This specialist in the accountancy and finance, construction and IT industries looks well placed to benefit from the upturn in the market. It is expanding and has improved productivity, investing heavily in training and technology. With further share buybacks to come, the stock is worth buying.
Ryanair is piling on new routes and extra flights, and last week it bought 70 new aircraft that will allow it to double its capacity by 2012. But in a competitive market where it already has a pretty poor reputation for service, it may not take much more bad publicity to send passengers elsewhere. Sell.
Asos, which sells copycat celebrity clothing to wannabe Kate Mosses, has struggled to cope with sales which are growing at around 140 per cent a year. Its stock is spread across four warehouses, a cobbled together solution to its fast growth that proved to be inadequate and very badly managed. Until management figures out how to run the bigger business, sell.
The property company Minerva owns a large part of Piccadilly Circus and has grand designs for London's tallest tower. A new chief executive will be charged with selling off some assets and creating joint ventures and standalone property funds. That is the direction in which value-creation lies and the speculative investor might find it lucrative to back the new strategy.
Britain has pioneered outsourcing and Serco is one of the more impressive of the companies to be managing vital services such the country's nuclear warning systems, young offenders centres, transport services including London's Docklands Light Railway, and military facilities. You don't see it in the news much, which tells you a lot about how little it messes up. Buy.
ASSOCIATED BRITISH FOODS
Associated British Food's products span Ryvita crackers to Twinings tea, and it also owns Primark, the cheap and cheerful fashion retailer which is expanding its 121-strong UK estate and opening stores in Europe. This column is a long-standing fan of the conglomerate and, although taking profits never hurts, the shares remain a core holding.
Dream duo trebles the profits again
Michael Dobson and Jonathan Asquith, the chief executive and finance director of Schroders, were like the cats who'd got the cream this week, unable to hide how pleased they were with themselves after trebling the fund management group's profits for a second year.
Although, by their own admission, such growth is unsustainable, the results completed one of the City's most impressive turnarounds - for which they deserve credit.
Since taking on what was a basket case three years ago, the pair have stripped out millions in costs, sharpened up their fund management team and started a crucial shift towards more profitable business. Although its lower-earning institutional mandates still account for some two-thirds of assets, its more lucrative retail division now constitutes almost half of new sales.
The question is whether the dream team can drive the business from recovery into its next phase of growth. With £759m of surplus capital waiting to be spent, Mr Dobson is on the hunt for small acquisitions.
The risk in the stock - as with any asset management business - lies in the fortunes of the equity markets.
Mr Dobson's enormous bonus (£1.8m in 2003, and sure to have been even higher in 2004) may also put off some investors. But with the wind well behind it, Schroders justifies a higher share price. Buy.
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