City File: Celsis diagnoses market niche

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The Independent Online
CONTRARY investors, Part One. The bloody-minded should take a look at Celsis, one of the much-derided breed of biotechnology stocks. Like many of its brethren Celsis, at 82p, stands well below its issue price of 100p. But, unusually, Celsis is already being backed by one drugs giant, Merck. And it will soon announce a link with another, Wellcome Trust. The key is that Celsis specialises in diagnostic tests for contamination, and now that drug companies can no longer rely on increased prices they must look at costs. Celsis enables them to find contamination in drugs much earlier than with current systems.

CONTRARY investment, Part Two. You can't get more contrary than buying shares in a Lloyd's broker. But Lloyd Thompson, due to announce interim profits next week, is no ordinary outfit. It has an impeccable reputation within the market for finding niches and sticking to them. Its expansion policy was set in 1987. Its unfortunately timed flotation - on Black Monday - was accompanied by a mass recruitment of staff from the giant Hogg Robinson. Since then, it has avoided buying other brokers and has concentrated on recruiting teams from rivals. A concentration on dollar-denominated business, and what the chief executive, Ken Carter, describes as its 'hair shirt philosophy with regard to cost control' makes the shares good value at 296p.

DELANEY Group offers a cheap way into profiting from the housing recovery. Yet the shares were unchanged at 12p after Friday's announcement that last year's loss of pounds 5.2m had been transformed into an operating profit of pounds 210,000. In the past couple of years, its controlling shareholder, the controversial entrepreneur Nathu Puri, has put its shopfitting business into receivership, selling off the furniture shops at the cost of a pounds 1.15m write-off. This left Delaney with its fitted bedroom shops under the name of Christie's Panel Products. The current year has started well, with orders well ahead of budget. The profits forecast is being upgraded to pounds 700,000 pre-tax, giving earnings of 1.3p and a prospective p/e of under 10.

TWO VERY different retail chains - Next and T&S Stores - have withstood the downward pressure that has afflicted most of their competitors. But even though their share prices have withstood recent storms, they're both still worth a punt. T&S is the result of near 20 years' steady growth in the ciggie-and-newsagent business founded by Kevin Threlfall in 1975.

Following last month's purchase of the Gibbs' newsagent chain, T&S now has 671 stores, and is steadily reducing its previous dependence on the cut- price cigarette business. Profits announced tomorrow will be much the same as last year's pounds 12.5m pre-tax. But at a mere 185p, their modest p/e multiple of under 13 doesn't reflect its prospects.

THE CASE of Next is even more intriguing. Once convinced that the 1980s wonder-stock had been brought back from the dead by focusing the business more narrowly, the market got greedy and started to worry: the excuses were an increasing tax charge and investment in the United States, often an ominous sign of over-ambition. But the respected analyst John Richards of NatWest Securities dismisses the fears.

'What really sets Next apart' he says, 'is the ability a la Argos-M&S to drive sales forward without too great a margin sacrifice.' Mr Richards is forecasting that profits to the end of January, to be announced on Tuesday, will be pounds 70m pre-tax, virtually double the 1993 figure. Next was one of the few retailers to have a bumper Christmas. Its sales were so successful that it had to take stock from the mail-order Next Directory and sell it in the shops. And even the American venture is making money.

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WHATEVER the result of the cola war described on the front page, one winner has already emerged: Rutland Trust. Last year, the financial services group bought 84 per cent of the Ben Shaw canning line for only pounds 5.7m and has sold the first 51 per cent to the Cott Corporation of Canada for pounds 6m. Cott has an option to take its shareholding to 80 per cent. So profits, to be announced tomorrow, will be boosted by an initial exceptional pounds 3m gain from the deal, taking the year's profits to around pounds 11m, compared with pounds 6.6m last year. Rutland's shares could move well above their current 26p.

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