The Investment Column: Aberdeen is a good bet to continue its recovery

Ceres Power; Asterand
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The Independent Online

Our view: Buy

Share price: 159.75p (-7p)

Aberdeen Asset Management has barely put a foot wrong since finally managing to disentangle itself from the split-capital investment trust debacle at the start of 2005.

The acquisition of Deutsche Asset Management's institutional business a year ago has proved to be truly transforming, securing the company a much more diverse client and asset base, and helping it to build strong and sustainable momentum.

In spite of May's blip in the UK's stock markets - where Aberdeen still has more than a quarter of its assets - the group revealed better than expected new business figures for the 11 months to August yesterday, reflecting the benefits of a more diversified business. Before the Deutsche deal, the group had almost two-thirds of its assets in equities, more than half of which was in the UK. Today, it has almost 40 per cent in fixed interest and cash, around 8 per cent in property, leaving it much better placed to handle poor market conditions.

The company now bears practically no resemblance to the basket case teetering on the verge of collapse three years ago. Since March 2003, its share price has multiplied eightfold, and even since we last tipped the stock in December, it is up 15 per cent.

While total assets under management have fallen slightly in recent months, the long-term prospects for the company continue to look good.

Most importantly, while most other asset management houses have been seeing heavy outflows over the past year, Aberdeen has continued to win much more business than it has lost.

Trading at more than 14 times next year's predicted earnings, Aberdeen is no longer the bargain that it was. Nevertheless, we believe the momentum can carry the shares at least 10 per cent further in the short to medium term. Buy.

Ceres Power

Our view: Buy

Share price: 205p (-39p)

Fuel cell technology is one of the great hopes for brave investors but remains a "jam tomorrow" story. One of the leading lights in the sector is Ceres Power, the AIM-listed fuel cell technology developer that looks closer than most to achieving its potential. With deals signed with Centrica and BOC, the company is confident enough to unveil plans to build a new facility for assembling fuel cell products, and to open a "mother plant" to mass manufacture components. Unlike many of its competitors, Ceres is ready to enter the production phase as it has developed routes to market alongside its technology. Its decision to start planning for the mother plant is aided by readily available government subsidies.

The Crawley-based firm's biggest draw is a £2.7m deal with Centrica to develop a combined heat and power unit for the residential market. Citigroup estimates this market to be worth £3.2bn a year in the UK alone.

Shares in Ceres dropped almost 13 per cent yesterday as investors fretted over a potential fundraising for the mother plant and a potential delay to the anticipated ramp-up in sales. However, 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.


Our view: Buy

Share price: 6.25p (-1.13p)

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 to create a global force in this field. The enlarged Asterand has a bigger sales force and wider client list which includes GlaxoSmithKline, AstraZeneca, and Pfizer. The chief executive - Randal Charlton, who founded the Detroit firm Asterand - has slashed the headcount to about 90 - evenly split between the UK and the US - and reduced the cash burn, thereby slicing £1.1m off the cost base. Asterand also managed to drive pro-forma revenues up 73 per cent to £3.8m in the six months to 30 June, and is forecast by the house broker, Piper Jaffray, to reach profitability next year.

The company picks up human tissue from about 100 hospitals and passes it on to Big Pharma for testing, while also selling bespoke research on its bank of human tissue. Mr Charlton believes it is only a matter of time before governments impose intermediate tests of new drugs on human organs and other tissue prior to using volunteers to try them out. The dangers of testing drugs on humans, even after they have been tested on animals, were highlighted by the disastrous Northwick Park trials this year. The shares have long been trading on a "recovery" valuation. After the merger, a rerating may be in order. Buy.