The Investment Column: Cookson recovery story is still priced at a discount

Protherics; White Nile
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The Independent Online

Our view: Hold

Share price: 630p (+32p)

Cookson shares roared to a four-and-a-half year high yesterday as the industrial materials group told investors that its annual results would come in ahead of expectations. It followed a strong third quarter for the company.

Half of Cookson's revenues come from its ceramics division. It is now targeting a profit margin of 13 per cent at the unit, compared with 10.5 per cent previously. This is because the markets it services are booming amid growing steel production and high investment in new steel making facilities in emerging countries.

Meanwhile, Cookson's electronics division continues to benefit from the transition to lead-free solder. Even its precious metals unit enjoyed a pick-up in activity since the summer thanks to solid jewellery demand in the US.

Cookson makes ceramic pipes and casts for the steel industry and solders used in consumer electrical goods. There was a hint from its management yesterday that acquisitions are a possibility, should the right opportunities present themselves. This shows that the turnaround at the company is totally complete.

Just a few years ago it was in serious danger of going to the wall and could not have dreamed of making acquisitions.

The recovery has been enacted by Cookson's chief executive, Nick Salmon, and has seen him make a series of disposals and move the group's production facilities to low cost countries such as China, India and Brazil.

Even after yesterday's rise in the share price, the stock still trades at a discount to the wider engineering sector.


Our view: Buy

Share price: 65p (-16.25p)

For the second time in a week Protherics has suffered a delay in the development of one of its drugs. Yesterday, it warned the City that US approval for its Voraxaze treatment is likely to come a year later than expected. Unsurprisingly, shares in the biotech plunged following the announcement.

Voraxaze is aimed at treating the kidney failure some patients suffer when undergoing certain types of cancer therapy. Protherics has been forced to withdraw a US licence request for the drug after the US Food and Drug Administration demanded additional manufacturing data. It now plans to re-submit the application next year and hopes to get the green light from the authorities in the second half of 2008, rather than the second half of 2007.

Last week, the group's CytoFab treatment was hit by a similar setback. AstraZeneca, Protherics' partner, said it would have to run an additional mid-stage study of the product, which counters blood poisoning, after discussions with regulators in the US and Europe.

It seems that both CytoFab and Voraxaze have been delayed for addressable reasons and not because they do not work or are dangerous, as is sometimes the case with medicines still in development. As a result, investors should use the recent weakness in Protherics stock as a buying opportunity. The company is among the most well-financed in the biotechnology sector. It enjoys about £20m a year in revenues and has a strong cash position with over £25m in the bank.

Via CytoFab, it and AstraZeneca pretty much have the sepsis market to themselves. Analysts estimate it is worth up to £4bn. Given the size of this opportunity and its solid finances, Protherics' current £167m market capitalisation seems far too modest.

White Nile

Our view: Avoid

Share price: 119.5p (+1.5p)

The oil explorer White Nile, run by former England cricketer Phil Edmonds, has now finished the first phase of its seismic operation in Block Ba of south Sudan. The results of the study have been promising and the company now has a series of target areas which it plans to drill in the first half of next year.

Given the extensive oil production presently taking place in the Muglad and Melut basins, parts of which Block Ba covers, it is very possible that White Nile is sitting on massive reserves. Nevertheless, the company remains one of the riskiest ventures listed on the London market.

White Nile, which owns 60 per cent of Block Ba, is half owned by the government of south Sudan. Although the bitter civil war between the south and the central authorities in Khartoum is now at an end, and a government of national unity is in place, Sudan remains very volatile.

But probably of greater worry for White Nile is the fact that Total has a claim over Block Ba. The French oil giant says it has the drilling rights to the block thanks to an agreement it signed with the government in Khartoum years before White Nile came into existence.

The company already is valued at £374m, although it has not produced a drop of oil. At current levels the stock is best avoided, even by daring investors.