The Week In Review: Smiths takes flight as it writes off TI

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The Independent Online

The aerospace and engineering group Smiths has admitted that its stake in TI Automotive is probably worthless. London-based Smiths was pressured by major shareholders to merge with TI, an American maker of car parts, in 2000. The following year, Tl was spun off and Smiths took £325m of preference shares in the hope that it would catch a rival's eye. No buyer stepped forward and no dividend was paid.

Writing down the value of the TI stake to zero cuts the sole canker from an otherwise healthy group. Its latest results show a 22 per cent jump in annual underlying profits before tax to £492m - better than the City expected. At £3.5bn, sales were 17 per cent higher this year than last.

Profits this year may have been flattered by currency conversions (more than half of Smiths' business is derived from the US), which will work against the group over the coming year, and an 8 per cent dividend increase to 31.35p looked a touch mean. But the diverse group is performing well and the shares are a long-term buy.

WOLVERHAMPTON & DUDLEY BREWERIES

Wolverhampton & Dudley Breweries toasted a 3.7 per cent rise in like-for-like sales at its managed Pathfinder pubs this week. The World Cup in Germany, coupled with scorching temperatures, delivered the expected drinking bonanza, with sales up 6.7 per cent in June and July. Buy.

MICRO FOCUS

Micro Focus shares shot up 5 per cent to 116p this week after the software company said it expected to achieve modest revenue growth in the first half, fuelling hopes that it has turned the corner. Should the worst days indeed be over, a valuation of less than 13 times' projected earnings for 2007 appears cheap. Yet the discount is justified given the historic turbulence associated with the stock and taking profit now could avoid shocks later. Sell the shares.

INFORMA

In the hard-pressed media industry, organic revenue growth rates of 11 per cent are unusual. But that is the happy position Informa revealed this week in its interim results. Informa is in part of the industry that is able to offer both defensive qualities and growth. This is a well-run business with good prospects. Buy.

CORIN GROUP

Cautious optimism that unstemmed cormets may appear in America by the end of the year has spurred Corin shares this week. Cormets are a type of artificial knee developed by Corin and awaiting approval by the US Food & Drug Administration. A niche player, Corin would also make a neat bolt-on acquisition for a bigger healthcare firm. Buy.

AVANTI SCREENMEDIA

Avanti Screenmedia has signed a deal to install advertising and promotional TV screens in 206 Spar stores across the UK. The deal is an important step for Avanti after its successful deployment of screens across shopping malls and pubs. Buy.

ABERDEEN ASSET MANAGEMENT

Aberdeen has not put a foot wrong since disentangling itself from the split-capital investment trust debacle at the start of 2005. Trading at more than 14 times' next year's predicted earnings, the shares are no longer the bargain they were. Still, we believe the momentum can carry Aberdeen at least 10 per cent further in the short to medium term. Buy.

CERES POWER

Fuel cell technology is one of the great hopes for brave investors but remains a "jam tomorrow" story. A leading light in the sector is Ceres Power, the AIM-listed technology developer that looks closer than most to achieving its potential. Shares dropped almost 13 per cent this week, but the stock is still a good punt up to the 280p mark, based on cashflow, if fuel cell technology fulfils its promise of becoming a huge growth sector. Buy.

ASTERAND

Pharmagene's merger with the private US company Asterand last year put together two loss-making medical research companies specialising in the use of human tissue. The company believes it is only a matter of time before governments impose tests of new drugs on human organs and other tissue prior to using volunteers to try them out. The shares have long been trading on a "recovery" valuation. After the merger, a rerating may be in order. Buy.

ALLIANCE BOOTS

Can management make a success of July's merger between chemist Alliance Unichem and high street retailer Boots? While the new entity has the potential to be an unstoppable combination, there are also uncertainties. A trading statement this week highlighted the biggest of these - the business is at the mercy of government policy on healthcare spending at home and abroad. That said, the group is in good shape. Shares in the company have moved little since the merger. Trading is at less than 17 times next year's earnings, buy.

LUPUS

The investment company named after a wolf and run by Greg Hutchings, the man behind guns 'n' buns conglomerate Tomkins two decades ago, is quietly building a head of steam. A nascent mini-Tomkins with a private equity twist, Lupus revealed this week that pre-tax profits jumped to £3.88m in the six months to the end of June from £870,000 a year ago. Buy.

DATONG

Datong is worth putting under surveillance. The Leeds-based company develops advanced high-performance surveillance equipment used by governments, military organisations and law enforcement agencies to track suspect vehicles, packages, containers and mobile phones. It is well positioned to benefit from increased government spending on counter-terrorism. Buy.

The above recommendations are taken from the daily Investment Column.

m.jivkov@independent.co.uk

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