Amersham looks in good health

Aggreko; Ultimate Leisure
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The Independent Online

Technology companies live or die by the quality of their intellectual property and need robust patents on their core products to fend off copycat rivals. So there was rejoicing yesterday that Amersham has settled the four-year battle against Applera, the US firm it claimed infringed its patents in areas such as dye chemistry and instrumentation.

These technologies are staples of Amersham's business, developing dyestuffs that are put into the human body to improve the clarity of pictures from medical scanners and help doctors diagnose disease. No financial details were disclosed but, in fairness, it looks to be something of a score draw. Amersham is to receive "rewards" from Applera over four years, without having to pay any money itself. And the two groups have agreed to pool their expertise to develop and commercialise new DNA ana-lysis technologies.

The deal will boost margins a little but perhaps its greatest impact will be in ending litigation costs, which totalled £20m since Amersham launched its suit in 1997. It also blows away one of the areas of uncertainty that have clouded the outlook for the business.

So the outlook is bright. Results yesterday showed the group grew sales by 13 per cent and underlying profits by 9 per cent in 2001. Amersham has a creative management team, led by Sir William Castell, who has caught the City up in his own enthusiasm for the company's novel ways to help diagnose and predict disease.

The company splits itself into Amersham Health – makers of the dyestuffs – and Amersham Biosciences, which sells equipment for sequencing genes and helping universities and companies research the reasons people are prone to certain diseases. Even this latter side, where margins were a little disappointing, is still seeing double-digit sales growth, and recent collaborations suggest it can benefit as the medical industry develops "personalised medicine" based on a patient's genetic predispositions.

Up 41p to a record 722p, the stock trades on 25 times this year's forecast earnings, about right for now. Twenty years after Amersham was privatised, it should be a core holding in a portfolio of blue chips.

Aggreko

Did someone turn out the lights at Aggreko? After a bright start to 2001, which saw the power generators supplier strike gold in electricity-hungry California, the year got darker.

Sales in the US – half the group's total – tailed off in the last six months, making it hard for Aggreko's well-respected management. Temperatures refused to soar, reducing demand for its air conditioning systems, the recession hit demand from companies, and 11 September put people off partying, damaging Aggreko's event and entertainment business in its strongest quarter.

To top it off, the US government capped the price of energy, wiping out 15 per cent of Aggreko's North American sales. Phil Harrower, the chief executive, may be busily redeploying generating equipment around the rest of the world to compensate for the drop in US demand but even he admitted it would take at least two years to replace the lost business.

Full-year figures yesterday reflected the tougher second half, which has seen the stock nearly halve since August, when this column advised investors to lock in profits. Pre-tax profit rose 10 per cent to £67.1m on sales up 17 per cent. Aggreko said it had yet to see any sign of demand picking up in the US and warned the economic outlook was its "least positive" for a while. This prompted a rash of downgrades from analysts who see earnings remaining flat for 2002.

The shares, down 20p to 270p, trade on a forward price-earnings ratio of 17 times and are likely to languish until the outlook improves. Avoid.

Ultimate Leisure

Savvy investors who took a swig of Ultimate Leisure last year, when a share placing boosted its liquidity, should keep their glad rags on. The party looks set to continue at the late night bars group.

The Newcastle-based operator has recharged prospects for its 23 outlets by switching its focus from bars to larger clubs with late-night licences. Ultimate doesn't operate under any single brand, giving it scope to open several units in a small area. It can corner the market in key drinking haunts such as Newcastle's Bigg Market. The group was recently granted the Geordie circuit's first 2am licence and will open a 1,300 capacity nightclub there in the autumn, taking its units in the circuit to seven. This simple clustering approach has helped the group to keep its costs low.

Ultimate's house broker expects revenue from these larger units to underpin earnings growth of 15 to 20 per cent for the next two years. While the shares are tightly held – the chief executive and his family hold around 70 per cent – they are on an undemanding p/e ratio of 11 times. Buy.

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