The Investment Column: Could do better, might have done worse ... portfolio's half-term report

Don't rush into Sinclair Pharma as it hunts for new licensing deals
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We have a mixed half-term report for The Independent's share tips for 2005.

Although the portfolio has put in a positive performance so far, it lags behind the class. High marks are being achieved for medicine and finance, but media studies is proving a weak subject. The portfolio has proved wise to drop computer sciences, but no doubt rues the snap decision to drop geology. Must try harder if it is to graduate with a good score in the end of year examination.

The decision to major in healthcare companies is proving well founded, with the Government reaffirming its commitment to using the private sector in the National Health Service and with our two FTSE 100 pharmaceuticals picks bolstering their pipeline of forthcoming drugs. Care UK has not put a foot wrong as it wins lucrative contracts to run nursing homes for local government and new centres for minor surgery for the NHS. GlaxoSmithKline continues to build confidence in its ability to replenish its pipeline of new products, and is putting vaccines in the spotlight at a City presentation today. And Shire Pharmaceuticals, which was notably undervalued at New Year, eventually won round investors on April's out-of-the-blue acquisition of a US biotechnology company, whose new drugs will reduce Shire's dependence on its best-selling attention deficit drug Adderall.

Our decision to back Terry Smith's Collins Stewart Tullett is also proving lucrative, as its acquisition of the derivatives broker Tullett beds down. And we have also made an above-market return so far from Prudential, which is winning market share for its UK life insurance products.

We remain optimistic about the portfolio. Expomedia, which runs conferences in eastern Europe, is down 8 per cent but it is a little company with volatile shares and we expect good newsflow. Meanwhile, the trading outlook for our best performer, the plumbing supplies business BSS, continues to be underpinned by health, schools and social housing spending. The stock is undervalued still.

We introduced a stop-loss strategy this year, kicking out stocks which fall 20 per cent from their peak. We have made three replacements, and in two cases we are pleased to have done so, since hopes for further increases in business spending on IT have been dashed. Harvey Nash, a recruitment firm specialising in IT consultants, was kicked out having fallen 17 per cent, and is now 45 per cent down from the start of the year. And Morse, a consultancy firm, is off 31 per cent.

Unfortunately we also had to part with Antofagasta, the copper miner, when fears for the global economy hit their height in April. It is now showing a 10 per cent gain on the year.

Our replacements have started badly, but it is early days. Cornwell Management Consultants should gain more government work now the general election is out the way; TDG, a warehousing and haulage company, put out a positive trading statement this week; and ITV has just won another victory in negotiations with the regulators.

The calculation of our gains is complicated and imprecise. On the one hand we take no account of trading costs and assume sales and purchases at the mid-price. On the other, we are not counting the benefits of reinvested dividends. Our notional £10,000 portfolio is showing a gain of £288, then, and we are confident of closing the gap on the market.

Don't rush into Sinclair Pharma as it hunts for new licensing deals

Sinclair Pharma, the Godalming-based healthcare company, is focusing on skincare products and high-powered mouthwashes as it tries to build a decent little business. The company is headed by Michael Flynn, whose previous berth was at Cortecs, a biotech which came close to collapse in the Nineties after indicating that medical trials were not as far advanced as they had previously suggested.

So Sinclair's performance is being scrutinised by a suspicious City. So far there has been one profits warning, because a licensing deal on a main product did not come through in time. Yesterday, it said revenues are ahead of expectations thanks to a number of other deals on what is a wide portfolio of products, but costs were higher so brokers have not reduced their forecasts for losses.

Two products stand out: a mouthwash called Decapinol and an eczema cream called Atopiclair. They are entering a crowded market and are up against big players, so a presentation of clinical trial results yesterday was as much part of a marketing campaign as it was an attempt to woo the City.

There were also details of interesting new products to come. Sinclair's financial fortunes are tied to the number of licensing deals it can sign. It has a cash cushion, but the real proof of this business will be in whether real growth in royalties on sales will be forthcoming. The share price, up 5.5p to 130.5p, valuing the company at £77m, leaves only a little room for disappointment. Wait.