The Investment Column: Hang on to Premier Foods as contamination scare recedes

Hardy Underwriting looks a likely bet for the next insurance takeover - Acquisitive Anite is a good long-term play
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Next up, it was the turn of the Sudan 1 food scare to threaten Premier. The scandal, caused by some carcinogenic dye in its Crosse & Blackwell Worcester sauce, forced Premier to launch the biggest recall in UK food history.

Small wonder the market has taken advantage of a few quiet months to send the shares soaring to a recent post-flotation high of 341.75p. In a half-year update yesterday, the group said trading was on track. Despite a slow start, it hopes new-product launches will drive sales this year.

The group, which emerged from the remnants of Hillsdown Holdings, has made it its mission to breathe life back into unloved British brands, from Ambrosia rice pudding to Angel Delight. It reckons that with the right level of nurturing (or cash to splash on marketing campaigns) it can get us all dolloping gallons of Bird's custard on our puddings again. And it has plenty of capital to burn on buying up our former cupboard staples because it is highly cash generative. Its most recent purchase was of Quorn, the fungi-based meat alternative.

Since 60 per cent of its grocery business - dubbed "ambient" because all its products can be stored at room temperature - is branded, Premier believes it can stand up to the supermarkets' aggressive tactics when negotiating a fair price.

The 40 per cent of its sales that come from making own-label jams for the likes of Tesco and Asda also provides useful scale. Eventually it hopes brands will account for 75 per cent of its grocery business.

It says it has "no material financial exposure" to the aftermath of Sudan 1, although its insurers are paying out cash to food manufacturers who used its contaminated product.

We tipped the shares when they floated at 215p. But at 326p, the shares are trading at nearly 12 times earnings, making them look fairly priced. Hold.

Hardy Underwriting looks a likely bet for the next insurance takeover

Hardy Underwriting is one of a clutch of Lloyd's of London insurers that has been screaming out for a buyer for at least the past 12 months. Although the sector has seen the beginnings of some corporate activity, with Cox recently taken private, and Goshawk currently in play, there has yet to be the rush of acquisitions that has been predicted.

But Hardy may well be one of the next to go. Although the board fought off an approach from Omega Underwriting just last week, claiming that 29 per cent of shareholders were not impressed by the bid, Omega is believed to have other investor support.

The takeover panel has given Omega until next month to put up or shut up. But even if it cannot come up with a better offer, there is every chance that Omega may have opened the gates for another. Investors such as Fidelity, M&G and Hermes are all thought to be rooting for a successful exit, and there is every chance that their prayers may be answered.

Now is probably not the time to be eyeing up Hardy if you are looking for a long-term investment. With rates in marine and aviation insurance - in which Hardy specialises - appearing to have peaked, Hardy will have to remain disciplined if it is to stay profitable in an increasingly competitive market.

If you want a quick bet on a successful takeover, however, there may still be some upside in the shares.

Acquisitive Anite is a good long-term play

Anite, the software and IT systems company, is recovering from an acquisition binge. It swallowed more than 30 companies in four years, but has had to take huge write-downs on a few misjudged buys.

It has since sold off a number to focus on servicing the telecoms, travel and public services markets, and yesterday said it had managed to reverse its losses of 2004, delivering a profit before tax for the year of £6.8m.

There are still two legacy issues dragging down the group. One is a programme for the state of Victoria in Australia, which runs until 2007 and is costing Anite double the amount to develop than originally planned. The other is an unfinished UK public services software system that is still mounting up costs.

Even with these two disasters, though, its three key areas are in growth. About 40 per cent of all package holidays are booked using Anite software, and three out of four local authorities use Anite technology. The more customers it wins, the more long-term fee income it generates from maintaining systems and upgrading software. Nearly a third of its revenues are recurring income, and this is growing.

Telecoms holds much of Anite's future growth potential. It produces dummy networks for mobile handset makers to test their equipment on. With mobile technology developing rapidly, Anite's services are key to getting them to market.

The shares trade at about 17 times 2005 earnings, fair given Anite still has risks. But Anite is recovering well in growing markets, and is embarking on a share buy-back programme. Buy for the long-term.

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