The Investment Column: Brighter future for life insurers

Cranswick looks tasty at this level - Silver find adds sparkle to Minco
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The Independent Online

After a week of impressive results from the UK's biggest life insurance companies, Friends Provident had a tough act to follow as it took to the stage yesterday. A 1 per cent rise in new business in 2004 looked paltry in comparison with the double-digit growth of its larger rivals.

While falls in its protection business could be explained by the sharp slowdown in the mortgage market - which generates more than 50 per cent of this division's sales - the drop in its core group pensions business was more alarming.

Friends blames this on an increasing number of companies not wanting to alter their pension arrangements before the wave of regulatory change sweeping the sector is over - a plausible excuse. However, it conceded that the next six months could also prove tough for its groups pensions business. Many advisers are telling company pension managers to steer clear of Friends until the merger between F&C and Isis, the company which invests Friends' clients' money, has bedded in.

Yet there remains plenty to be positive about at Friends. Having secured a good number of ties with financial adviser networks over the past six months, it is one of the better placed insurers to take advantage of "depolarisation", the new rules on where financial products can be sold. It hasn't yet signed up a big bank to sell its investment and pensions products, but it stands every chance of securing a deal over the coming months.

New revenue streams are also promised, as Lombard International, its recently acquired offshore business, begins to contribute - and as Friends launches a marketing push in individual pensions.

At 160p - a little more than 1.2 times its embedded value, the City's preferred valuation measure - Friends is not overpriced, and remains a worthy shareholding for existing investors. For those looking to get fresh exposure to the life insurance sector, however, stocks such as Legal & General and Prudential promise to perform better in the short term.

Cranswick looks tasty at this level

It is pretty difficult to make a decent living as a food supplier, what with the mighty supermarkets flexing their muscles to drive down prices. To do so, a food group needs posh products for which people will pay up, and it needs to keep a very, very close eye on costs across the business. Cranswick fits the bill, as its trading update yesterday amply demonstrated.

Based in Driffield, East Yorkshire, the group sells fresh pork, gourmet sausages, delicatessen cooked meats, and last month it paid £80.6m in cash to buy Perkins Chilled Foods, processor of cooked meats - which is integrating well, it said. The group also includes sandwich-making, animal feed and pet food businesses.

The management has just about completed its massive capital expenditure programme, building four new factories at a cost of £20m and closing five existing sites. The expectation is that proceeds from property sales will cover the one-off costs of the restructuring.

When we last wrote on Cranswick, in May, high raw materials prices, particularly the cost of wheat, were hurting the animal feed business, but this is back in the black thanks to more normal prices and the self-help effects of mill closures. We advised readers to hold off until the interim results in November, then reassess. Those results did indeed prove a turning point for the shares, which have leapt 50 per cent since then. Yesterday, down 5.5p at 561p, they were trading at almost 12 times its broker's earnings forecast for the current year. That is a sector-average valuation for a company with an above-average track record and growth prospects. Buy.

Silver find adds sparkle to Minco

Two years ago, the mining exploration group Minco was looking for base metals in Ireland. One year ago, it was focused on gold in Russia. Today, it is very excited about silver in Mexico. Should we deplore its flightiness, or applaud its opportunistic pursuit of value?

On balance, the latter - although be careful with speculative mining ventures. While Minco has been refinanced since October (with the end-date of results out yesterday), it could well need to raise more money from shareholders before it gets anything out of the ground.

Gamblers, though, will be attracted by the prospect of a steady stream of news this year. Minco is moving forward with plans to dredge flakes of silver from the bed of a lake in central Mexico (it will shortly begin the search for project finance and production could begin next year), and as the first drilling reports emerge from its newly acquired gold and silver projects nearby. If the news is good, the shares could rise strongly from their current price of 15.25p. Have a punt.