The Investment Column: No hedging - RAB's results are stunning

Bespak; Straight
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The Independent Online

Our view: Buy

Share price: 94p (-6p)

Hedge fund manager RAB Capital put out yet another set of blisteringly good results yesterday, revealing it had almost doubled its profits and more than doubled its turnover in 2006. Its shares are now up by almost 150 per cent since the company listed on the Alternative Investment Market three years ago, and are up by some 50 per cent since we tipped the stock in this column last March.

The company makes its money from management and performance fees on its range of hedge funds it runs - the largest of which is its special situations, which has assets of more than £700m and has returned several thousand per cent to its investors since it was launched four years ago.

Although the company takes 2 per cent management fees on all its assets, the real money comes from its 20 per cent performance fees, which it takes on everything over a certain benchmark.

The enormous increase in its profits is a measure of just how well its funds have performed over the last year. Unsurprisingly, high profile investors have been keen to get a bit of the action. Yesterday, the company revealed that steel tycoon Lakshmi Mittal - one of Britain's richest men - had invested some $200m (£101m) of his personal wealth in the RAB Special Situations fund at the end of last year.

As well as making incredible progress organically, RAB has also shown it has an appetite for acquisitions, picking up Northwest Investment Management last year. Chief executive Philip Richards said yesterday that the company planned to continue doing at least one deal a year.

In spite of such strong performance, RAB still does not look expensive. Trading at less than 12 times this year's predicted earnings, it remains much cheaper than most of its larger quoted peers, yet carries much more potential. The company is planning to make a move from AIM onto the main market soon, which will only improve liquidity in the stock, and introduce the business to a raft of new potential investors. If you don't own this stock yet, it's well worth picking some up.


Our view: Buy

Share price: 664p (+44p)

The management team at inhaler maker Bespak are breathing easily following a stellar set of half-year results. Revenue soared a massive 61 per cent in the six months to November while pre-tax profits jumped 39 per cent, slightly ahead of market forecasts. Chief executive Mark Throdahl has set a target of doubling profits over the next five years, from a combination of organic growth and acquisitions.

Bespak's shares rose 7 per cent yesterday and analysts believe there is much more to come, claiming Bespak is the best value stock in the sector.

The company's most exciting product is an inhaler it makes for Pfizer's drug Exubera, the world's first inhaled insulin, to treat diabetes. After various delays, it is finally being launched in the US, where diabetes is the fifth-biggest cause of death and accounts for $132bn in annual healthcare costs. Production demand is already ahead of the company's original expectations.

This comes on top of the Bespak's rising income from Diskus, its dry powder inhaler used with GlaxoSmithKline's blockbuster asthma treatment Advair.With momentum expected to be carried into the second half and the potential for another acquisition over the next twelve months there is a lot to keep investors happy. We can recommend a buy.


Our view: Hold

Share price: 239.5p (-19p)

Recycling has taken off in Britain in a big way in recent years, with most households now managing to recycle at least a proportion of their rubbish.

Unsurprisingly, Straight - which makes the containers in which you leave your recyclable waste for the council to collect - has been cleaning up as a result. As well as benefiting from a number of local authority contracts to supply every household in the region with recycling boxes, sales of its water butts - which collect water in the garden that can then be reused - also did very well in 2006 due to the large number of hose- pipe bans.

Publishing a trading update yesterday, the company said it had seen a steady 12 per cent increase in turnover last year, but conceded profits had taken a knock due to higher than anticipated distribution and administrative costs. Having now agreed to outsource this side of business to DHL, it believes these costs will come back under control this year, and will give the company additional capacity to grow the business.

Although prospects for the business continue to look positive, the shares enjoyed a strong run up to the summer of last year, and still look relatively expensive compared to others in the sector. Having come off another 7.5 per cent yesterday, they are moving back to more reasonable levels, but investors should still hold off for the time being. There will be better times to buy.