A new bubble has inflated in online travel agents

First Active may be running out of puff; Erection cream heralds a Futura of rising demand
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The Independent Online

Brent Hoberman, chief executive of lastminute.com, would rather we weren't writing this investment piece. Not because we have a downer on his share price (although we do), but because he doesn't think lastminute should be compared to its rival ebookers.

Both online travel agents' shares have surged in recent days and lastminute flew over the £2 mark for the first time yesterday, up 10p to 204p. Yet again there was market chatter that it has received a takeover approach. It hasn't. It would have had to announce that to the Stock Exchange by now if it were true. Ebookers' house broker, Evolution Beeson Gregory, has been talking up the prospects of sector consolidation, arguing that "if lastminute were to be purchased, attention is bound to switch to ebookers". Well, investors had better hope that a bidder does come out of the woodwork, because lastminute's share price cannot currently be justified without one.

USA Interactive bought the resurgent Expedia of the US at a multiple of gross profit that might suggest a take-out price for lastminute of £2, but the UK group has higher costs, is at an earlier stage of development and operates only in the smaller, European market. A bid from anyone outside the overvalued world of dot.com travel agents also looks fanciful.

Mr Hoberman is right to point out some of the differences with ebookers. His rival focuses almost wholly on selling flights, compared with lastminute's wider product offering. Ebookers also does much of its business off-line. So ebookers' shares should trade at a discount to lastminute, but not one this wide, particularly while there remain question marks over the relative inefficiency of lastminute's administrative operations.

Online travel agency is changing the face of the travel industry, but margins may start to come under pressure from suppliers and greater competition. Financial forecasts - especially for lastminute - are unreliable, but they have to be far too low if these stocks' earnings per share and enterprise value-to-sales multiples are justified. Ebookers looks toppy; lastminute is a sell.

First Active may be running out of puff

First Active, the Dublin-based building society turned bank and one of the country's top five mortgage lenders, had to rescue itself from disaster shortly after its flotation in 1998, but after a big restructuring to refocus the business on the local market, Irish eyes are smiling once again.

The company put out a robust set of results for the six months to 30 June yesterday, showing pre-tax profit had surged almost 12 per cent to €34m (£24) in a booming Irish housing market, where annual house price inflation is still running at about 14 per cent.

First Active recently shared out €160m among its shareholders after finding itself with more money than it could sensibly spend thanks to the disposal last year of the remainder of its telephone and internet banking interests in the UK.

First Active's ambition now is to sell extra products to its Irish customers and it is still behind the curve in this enterprise. That said, income from savings and insurance products rose 13 per cent in the reported period, beating analysts forecasts. With costs being kept low across the business, First Active is therefore looking in good shape.

The problem of course is what happens to the Irish housing market which, as in the UK, is looking overcooked. Demographic changes mean a big collapse is unlikely, but if a buyers' strike develops in anticipation of falling prices, the lenders could face tougher times than heretofore.

This could prove a particular problem for First Active because its shares remain highly valued compared to rivals. Down 9.5p to 319p, they trade on 12 times earnings. We suggested taking profits at 371p in January and, despite the expiry of takeover protection in the autumn, it seems likely they will continue to drift lower.

Erection cream heralds a Futura of rising demand

It is five years since a little blue pill revolutionised the way men think about not being able to get an erection. Now, that hunk of footballing masculinity, Pele, advertises Viagra and rival drugs are being launched with a massive marketing budget. Impotent men increasingly seek treatment.

So Futura Medical is in a sexy area. The company, floated on the junior AIM market yesterday, is developing a rub-on cream to strengthen erections. Based on a chemical already used in over-the-counter treatments for angina, the product works by opening up the blood vessels. Futura says early tests suggest it is safe enough for use, with only dizziness or headaches sometimes reported as side effects. The only worry is that, if it is not used with a condom, users might - ironically - give their female partner a headache.

The shares nudged up to 71.5p from a pre-float placing price of 70p. The company is no pie-in-the-sky biotech, based rather on sound science and a chemical that has been around for 40 years. The anti-impotence cream is ready for a final phase of trials, and Futura's other major product (a gel inside condoms that strengthens the erection and stops the condom coming off) could be launched in a year by SSL International, the owner of Durex.

Futura is a racy investment, since it has not generated a penny in revenues since foundation in 1997, and the products may still fail. But investors with a strong heart should get amorous with the shares.