Investment Column: Admiral is worth climbing aboard

<preform>Tate & Lyle sees sweet returns from Splenda; NXT technology needs to find mass-market appeal</preform>
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The Independent Online

Admiral, the motor insurer, successfully navigated the final stages of its flotation. Given the rather fragile current state of the UK equity market, it was a brave time to set sail. But with its private equity backers keen to get their payday while the insurance sector is at the top of its cycle, it did not have the option of holding off much longer.

Admiral, the motor insurer, successfully navigated the final stages of its flotation. Given the rather fragile current state of the UK equity market, it was a brave time to set sail. But with its private equity backers keen to get their payday while the insurance sector is at the top of its cycle, it did not have the option of holding off much longer.

At 287p, where the stock ended its first day, Admiral is no bargain. However, in spite of forecasts by its own chief executive, Henry Engelhardt, that motor insurance rates are likely to be flat for the next two years, the company has a compelling investment story to tell. The stock does not look especially over-priced either.

A third of its business comes from directly insuring its customers, while the remainder results from its role as an intermediary, finding customers policies with other insurers. The group argues it should be valued in line with the insurance brokers, who trade on about 12 or 13 times earnings, rather than the underwriters, who trade on eight or nine times. At yesterday's close, Admiral's valuation puts it between the two at about 11.5 times this year's expected profits.

While Mr Engelhardt's prediction of flat rates may even be optimistic, Admiral has the capability to continue to grow profits even in a falling market. With 70 per cent of its business transacted online, it has a much lower cost base than its peers, as well as a significantly better claims ratio. Furthermore, in Elephant, Admiral and Diamond (for women drivers), it has three of the UK's strongest car insurance brands to build upon.

The biggest risk is that, if insurance rates soften across the board, Admiral could find its shares being dragged down with the sector as a whole, but with a strong management, which has grown the business almost tenfold over the past five years, the longer-term outlook is encouraging. With the added bonus of a prospective 4 per cent dividend, Admiral is a worthy investment for whose whose sea legs can stand a long and potentially stormy voyage.

Tate & Lyle sees sweet returns from Splenda

Everything appears to be going Splenda-idly at Tate & Lyle. The food ingredients company, which makes cereals, sugars and starch, has invented a new sweetener called sucralose, which it has branded Splenda. The product is made from sugar, so it tastes like sugar but - get this - it has got no calories.

No wonder there is soaring demand for the product from the makers of health foods and drinks and, indeed, from the makers of unhealthy foods who want to give a nod in the direction of the healthy eating lobby.

Tate & Lyle's factory is working flat out to keep up with demand, and the company plans to double capacity. The product earned profits of £33m last year, and that much again in just the first half of this financial year.

Sucralose is just the sort of "value-added" product Tate's new chief executive Iain Ferguson wants to encourage. The company has been more traditionally associated with commodity products such as sugar and cereals, where profits can be at the mercy of the weather. Wheat and corn prices, for instance, soared early this year, squeezing profits in the starch business which uses them as raw materials. Now, profits are improving faster than expected here because wheat and corn prices crashed over the summer.

So it was an upbeat trading update yesterday and Tate shares ticked 1.75p higher to 366.75p. That puts them on 11 or 12 times likely earnings this year, which looks pretty high historically and a little vulnerable to trading disappointments. That said, the dividend yields over 5 per cent, making the stock a buy for income.

NXT technology needs to find mass-market appeal

NXT HAS invented an extraordinary new kind of loudspeaker, one so flat that it can be fitted in spaces that traditional speakers cannot, and which might revolutionise the manufacture of car stereos, computers, even perhaps mobile phones.

This column was a True Believer during the tech investment boom, but who didn't get carried away then? It remains the case that this is a viable technology and big name electronics firms such as NEC, Philips and TDK, and the TVR sports car makers, have products on the market which use it. But whether NXT is a viable company remains to be seen. The 3.1 million products sold so far are niche computing products (laptops in Japan) or gimmicks (the Soundbag CD carrying case with built-in speaker).

A verbose results statement yesterday gave the impression of more progress than has really been achieved. Because royalty rates are so low, unless NXT is designed in to a mass market product there will be no justification for the current share price - and NXT's £8.6m cash reserves will run out.

It is tempting to recommend NXT shares for those with gambling money, in case a mass market product unexpectedly emerges. But the shares are so much more likely to fall first, that even True Believers should wait before buying.

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