The Investment Column: One-stop baby shop Mothercare is still worth cradling

Protherics; UBC Media
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The Independent Online

Ben Gordon, Mothercare's chief executive, ordered a big dose of TLC for the baby goods retailer when he took the helm three years ago. That loving affection has paid off and the one-stop baby shop is in rude health once more after years of neglect by its former parent, the Storehouse group.

From making losses of £19m when Mr Gordon joined, it is now making profits of £20m. Under his direction, the UK stores have been given a new lease of life, and the company is managing to buck the wider retail malaise.

A trading update yesterday, in the run-up to its annual results, showed that the core UK business managed a 1.3 per cent rise in underlying sales during the fourth quarter despite the "challenging" backdrop.

Because mums can be technology savvy too, Mothercare has been pushing its e-tail business, helping it lift sales during the past three months. Sales over the internet are 5 per cent of its annual £400m UK revenues. But this proportion should increase.

The group hopes a new distribution centre, due to come on stream in August, will improve its stock control, availability and help it battle against the other plague afflicting the sector - soaring operating costs.

And if all this fails to boost the company's performance, there is always its burgeoning overseas business to fall back on. All of its international stores are franchised, which turns expansion into a low-risk, low-cost game to play. During the 12 weeks to 1 April, international sales rose 28.5 per cent, faster than the City had expected, helping total group sales increase by 5.6 per cent during the quarter. The group added 46 new stores overseas during the year and expects to open another 50 in its next financial year, which started this week.

We have long been fans of the stock, which is up again since we last tipped it six months ago. Now is no time to put this baby down. Keep cradling.

Protherics

Protherics really hit the big time in December when it secured one of the best licensing deals in recent biotech history. The tie-up with AstraZeneca, Europe's third-largest pharmaceutical player, sent shares in Protherics up 44 per cent to 81.5p on the day it was unveiled. It saw AZ make CytoFab, the biotech's treatment for sepsis, a key plank in its drive to diversify its dependence on a few core products.

Under the terms of the deal, Protherics got an initial payment of £16m upfront and AZ bought a 4 per cent stake in the group at 68.25p a share for £7.5m. Total milestone payments due to the biotech - if all goes to plan with the development of CytoFab - is £195m along with a 20 per cent royalty from global sales of the drug once it hits the market. Apart from a product belonging to Eli Lilly, AZ and Protherics have the sepsis market to themselves. Analysts believe it could be worth up to $8bn (£4bn).

CytoFab is by no means Protherics' only treatment. It already has a snakebite antidote and heart disease treatment on the market while Voraxaze, a drug for people with kidney problems, is in the late stages of clinical trials. A trading statement yesterday from Protherics assured the City that all is going to plan. Given the potential of CytoFab, and the group's pipeline of products, its shares should be bought.

UBC Media

UBC Media is a small radio company that is sitting on a potential large and lucrative new technology business. Yesterday it announced that it had reached an agreement with BT to trial its digital download service.

This gizmo will enable digital radio listeners to download a music track they have just heard, on to their mobile phone or radio. Considering how influential radio listening is on music sales, this could be a very significant development, not only for UBC but the radio industry as a whole.

UBC owns the spectrum that allows the music track to be transmitted, as data, and also the software and systems that enable it to be downloaded by the consumer.

This is a whole new source of revenue that could, potentially, be worth tens of millions of pounds a year (group turnover was £16m in 2005).

UBC also indicated its revenues would be up 25 per cent on last year. Remember that revenues are heading in the opposite direction in the rest of the sector. UBC shares have been caught up in the negative sentiment that has hit the industry in recent months. That makes for a buying opportunity at 19.75p.

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