The Investment Column: Elan tries to put the past behind it

Brandon Hire has growth locked in for coming year - Alphameric's software approach to the races
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The Independent Online

The story of Elan is one of the great corporate sagas of the past decade. At the height of the biotech bubble in 2000, this was Ireland's largest company. But it was in large part a financial construct, built up by the accountants in charge, who recycled the company's own money, via collaborations with small, experimental drug developers, to give the illusion of higher revenues and net assets.

The story of Elan is one of the great corporate sagas of the past decade. At the height of the biotech bubble in 2000, this was Ireland's largest company. But it was in large part a financial construct, built up by the accountants in charge, who recycled the company's own money, via collaborations with small, experimental drug developers, to give the illusion of higher revenues and net assets.

It had essentially mortgaged its biotech investments, and when they collapsed in value, Elan came to the brink of bankruptcy. New management had to ensure a piece-by-piece unpicking of those collaborations, a massive fire-sale of assets, and the $85m (£46m) settlement of investor lawsuits which alleged that Elan misled the market.

Yesterday, a last piece of the jigsaw was in place with the agreement of a $15m settlement with the US regulator, the Securities and Exchange Commission.

So what is Elan now? It has sales from prescription jabs Azactam and Maxipime for pneumonia and other infections, and income from contract manufacturing for other drug companies. But it is three new products which ought to drive growth at the company. Tysabri is a new treatment for multiple sclerosis, developed in collaboration with Biogen Idec of the US, and take-up has been strong since the drug's launch in November. Some analysts expect it to have sales of $3bn a year when it becomes well-established. It could also be extended for use in rheumatoid arthritis.

A second drug, Prialt, for chronic pain, was also launched last year. And then there is work on Elan's potential new Alzheimer's disease drug, which has suffered setbacks but could come to fruition around the end of the decade.

At the company's full-year results yesterday, Elan reiterated its confidence in returning to profit by the end of 2006. There was a warning of higher costs than the market had expected, but generally the results helped in the process of restoring confidence. Hold.

Brandon Hire has growth locked in for coming year

Brandon Hire has been renting out tools and building appliances to the construction industry for the past 35 years, growing its business steadily, albeit rather slowly.

Until two years ago that is. Since stepping up the pace in its mission to transform the company from a southern-based business to one of the largest national players in its market, its shares have more than trebled.

Today, with 130 stores - 32 of which were acquired only last year - it has a 6 per cent market share and growing. Fast.

Announcing better than expected full-year profits yesterday and with the group's growing national presence helping to bring in larger accounts, the management intends to keep on its acquisitive track.

Furthermore, earnings from its recent purchases have yet to trickle through to the company's bottom line. So there looks to be certain growth already locked in for the coming year.

At yesterday's price of 169p, which equates to about 12.5 times next year's expected profits, Brandon does not look expensive either - especially compared with its peers. Buy.

Alphameric's software approach to the races

Bookies like to monitor how much cash is piling on to certain horses in certain races throughout their network of betting outlets, so they can narrow their odds if they become worried about paying out. Alphameric, a provider of sales software to the betting industry, allows them to do just that, and trading in betting shops has never been better.

This is mainly thanks to the popularity of virtual roulette machines which are raking in cash for bookmakers, who are willing to spend on software to get even more from their customers. Alphameric said sales to bookies were up 15 per cent, and operating profits up 44 per cent to £4.2m, in the year to the end of November. It has secured a £25m contract with William Hill for a new electronic point-of-sale system, giving it solid revenues for 2005.

If only Alphameric hadn't taken such a gamble on providing software systems to the retail sector. It expanded at the height of the dot.com boom but did not get much scale and has since been haemorrhaging cash. Its retail division was sold last year, but not without a £56m loss.

The underlying business does look to be improving. It is expanding into the hospitality industry, supplying pubs and restaurants, such as the Yates chain, with electronic tills that hook up to ordering systems. Sales here were up 24 per cent.

The company has backed the right horse by getting out of retail. But we have always been slightly nervous of Alphameric's lumpy revenue streams, which depend on contract wins. At about 17 times earnings, it needs a better track record before we could recommend it. Avoid.

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