The Investment Column: A powerful reason for checking out National Grid

Neteller; ClinPhone
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The Independent Online

Our view: Buy

Share price: 717p (-2p)

It may be open season for foreign companies buying up UK utilities, but for British concerns taking over overseas interests the going is much tougher. Just ask Steven Holliday, chief executive of National Grid, which still hasn't finalised the $7.3bn (£3.6bn) purchase of the US power company Keyspan, a deal first announced more than a year ago.

The good news is that yesterday Mr Holliday moved to within touching distance of completion. New York's Public Service Commission approved the acquisition, the final clearance needed from the five US states required to sign off on the deal

Even more positively for National Grid, the terms of yesterday's approval are more favourable than many had expected. The company has agreed to sell Keyspan's Ravenswood power plant within three years or to freeze the price of its output for five years. It must also share the benefits of synergies equally with customers - the New York regulator had previously said National Grid could only keep 10 per cent of any savings.

Regulation of electricity and gas distribution in the US does not demand the tight margins in place in the UK. Mr Holliday expects the US to produce half the company's operating profit once the deal is completed.

Not that expansion in the US is the only major challenge in the in-tray of Mr Holliday. He must also negotiate the UK gas distribution review, due to conclude later this year, and continue the company's drive to reduce costs.

On the latter, Morgan Stanley earlier this year calculated that, with the Keyspan acquisition under its belt, National Grid's controllable cost base would be roughly £1.5bn - and that there was scope for cutting this by 10 per cent.

As for Ofgem's gas distribution review, the early signs are encouraging. Updated proposals are due next month, but the regulator has already addressed most of the key issues in an interim review, reducing the potential for any hidden nasties.

With a dividend hike possible towards the end of the year, adding to an already decent yield of 3.7 per cent, buy the shares.

Neteller

Our view: Buy

Share price: 84p (+1.5p)

It has been a torrid 12 months for Neteller, a payment processing business for the online gaming industry. Its shares tanked following the US crackdown on internet gaming and were suspended after two of its founders were detained in the US.

As the company restructured to focus on Europe and Asia, the number of staff was cut from more than 1,000 to around 425 worldwide.

Yesterday, Neteller, which provides e-wallets for online gamblers, posted half-year results, the first indication of how the company will fare without the US market and the signs are good.

Like-for-like revenue in the two regions grew 46 per cent over the six months to $21.2m in Europe and $5.4m in Asia. Overall, turnover was down 57 per cent due to the exit from the US. The key areas for growth are Australia and China while the UK, Germany, France and Scandinavia are all strong markets.

Chief executive Ron Martin yesterday indicated although the focus will remain on its online gaming business, the company intends to branch out, and it is looking into the fast-growing world of social networking to see how it can provide its e-wallets to sites such as Facebook.

Analysts yesterday upgraded their forecasts on the back of the higher-than-expected growth. As Neteller trades at just under eight times 2008 forecast earnings, it's worth a gamble. Buy.

ClinPhone

Our view: Buy

Share price: 57.5p (-2.25p)

Has ClinPhone hit bottom? The Nottingham company that runs clinical drugs trials for some of the world's biggest pharmaceutical companies has lost nearly three-quarters of its value since the beginning of the year. It sank to a new low yesterday after it put out a release explaining last month's profit warning - the second this year - and revising its revenue estimates down £10m for the year.

The group, which provides telephone and IT systems that allow big drug companies to run trials that are more efficient, was tripped up by technical difficulties with its systems in June and July. That spooked clients into cancelling orders to the tune of £4m. The continued weakness in the dollar has also hit the company's earnings.

But chief executive Steve Kent tried to assure investors everything was now under control. He said: "Management has taken and will continue to take urgent action to correct these issues and put the company back on track."

It is no secret that pharmaceutical companies are looking for ways to reduce the duration and cost of bringing drugs to market. It usually takes 10 years and about $1bn to get a single drug approved. Assuming ClinPhone really does have the kinks ironed out - evidence of this could be seen from an order book that has grown, despite the recent problems - now might be just the time to take a punt.

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