The Investment Column: Enterprise investors can stay for another round

Protherics; Trikona Trinity Capital
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The Independent Online

Our view: Hold

Current price: 523p

"Don't drink, don't smoke, what do ya do?" If Adam Ant's Eighties hit "Goody Two Shoes" is still playing on pub jukeboxes, the lyrics must be galling for landlords, increasingly describing, as they do, the typical customer of a public house. Even without the smoking ban, the British Beer and Pubs Association says Britons now drink less beer than at any time since the 1930s.

Little wonder that Enterprise Inns has unveiled a 19 per cent fall in profits for the year to 30 September. The group said the smoking ban had hit some of its pubs so hard they were no longer economically viable – it has put 96 outlets up for sale with immediate effect. The wet summer piled on the misery at Enterprise, with total revenues for last year down 5 per cent.

The better news is that while pub customers no longer smoke and are cutting back on drinking too, they are at least happy to eat more. Enterprise's food revenues were up 13 per cent last year, though here too there is a health warning. The group warned that with every pub in the land now offering some sort of Jamie Oliver-inspired gastro offering, landlords either had to provide genuinely high-quality fare or not bother.

With growing concern about Britain's drinking culture, notwithstanding those falling beer sales, and falling consumer confidence, the outlook for the pubs sector is challenging. Still, for those with a glass half-full mentality, there's another factor that may yet mean all in the beer garden is rosy.

Conversion to Real-Estate Investment Trust status would provide Enterprise with significant tax benefits, and like much of the pubs sector, the company has been examining this option with gusto.

Yesterday, Enterprise said HM Revenue & Customs had not yet given it the go-ahead to move towards conversion, but the company is in ongoing talks with officials over restructuring plans that could pave the way for Reit status. Despite the downbeat trading figures, it's worth sticking with Enterprise until closing time on Reit talks. Hold.


Our view: Buy

Current price: 55p

Protherics, one of the UK's most established biopharmaceutical companies, is gearing up for a big 2008. It is second-nature for life sciences companies to point to jam tomorrow, but with six products entering phase II trials over the next six months, Protherics is able to boast that it has a larger development pipeline than any other UK biotech.

Yesterday's interim results illustrate why Protherics is well-regarded. The company's underlying revenue growth was an impressive 41 per cent at constant currency rates, while its pre-tax loss of £6m was much better than had been expected. The company benefited from strong sales of its snake-bite treatment, CroFab, which achieved first-half revenue of over £10m.

Perhaps more significantly, Protherics reported a cash pile of £47m, giving it the firepower to continue to develop a number of potential blockbuster drugs under its wing. Two potential star products are CytoFab, which treats septicemia – a $6bn market – and Digiband, a drug designed to treat sever pre-eclampsia, a life-threatening condition which affects pregnant women. There is no existing product to treat pre-eclampsia, and the market is estimated to be worth $900m in the US and $600m in the EU. Protherics has completed patient recruitment for Phase II trials for Digiband, and is accelerating its R&D programme ahead of reporting results next year.

Protherics has a host of other drugs set to cause excitement in 2008, and will resubmit its kidney failure treatment Voraxaze for approval by US regulators. Analysts are betting that the newsflow will push the company's undervalued shares up sharply, boosting its meagre valuation of less than £200m. While the shares have gained 20 per cent over recent months, they took a 5 per cent knock yesterday, perhaps providing an entry point for exposure to a biotech already generating revenue that has huge growth potential. Buy.

Trikona Trinity Capital

Our view: Risky buy

Current price: 84.25p

The UK property sector is in the doldrums, to put it mildly, so sector investors may wish to cast their eyes to foreign markets. Trikona Trinity Capital raised £236m when it came to the market in April 2006, and so far has invested in 12 projects in India, where the property market has been relatively buoyant because it is so far behind the developed market cycle. Yesterday the company announced that it has completed four partial exits, returning 108 per cent on its initial investments. The gain, £16m, will be reinvested in new projects and in extending the existing portfolio. Trikona's portfolio includes a range of commercial, residential, industrial and infrastructure projects throughout India, and is already showing some impressive Net Asset Value gains.

We believe that the Indian growth story is compelling for long-term investors, perhaps even more so than China. The population of India is rapidly catching up with that of China, and what India lacks in infrastructure it makes up in terms of the soft economy – English is widely spoken, its judicial and political systems are modelled on those in place in the West, and it has a highly educated, motivated workforce.

This is not a stock for the risk-averse investor, but as a long-term investment in Indian property Trikona looks well worth a punt.