Amersham offers healthy value

Pace Micro still has further to fall; Ultimate's a growth bet even if it lacks pizzazz

Amersham, the healthcare group that was Margaret Thatcher's first privatisation 20 years ago, is the kind of company described as "complicated" even by the City analysts who follow its every move.

It's a strange beast with one division (healthcare) concentrating on imaging products such as radioactive dye-stuffs and other chemicals which are put into the body to enhance the visibility of X-rays. The other division (biosciences) focuses on making instruments and reagents for life sciences companies, academics and major drugs groups. A key part of this is the development of protein separation products which are used in drug development.

This has been an important year for the company, which paid £704m in March to buyout Pharmacia's 45 per cent stake in its biosciences division. This deal is one of the key issues facing the company as analysts are keen to see if Amersham can generate a return on the investment.

Yesterday's third-quarter results showed steady progress with sales in the period to 30 September up 7 per cent to £378m. The figures were in line with expectations with sales in both divisions up 7 per cent.

The problem is that big drugs companies, biotech groups and academics have been reducing the funds spent on research and development. One reason is that the race to develop the map of the human genome is now over, meaning a bubble of huge spending has gone. Amersham claims it is less exposed than rivals. The slowdown has seen some impact on sales of instrumentation but the protein separation business, where operating margins are 40 per cent, grew 13 per cent.

Much will depend on the final three months of Amersham's financial year, which includes the lion's share of healthcare spending.

The shares rose 32p to 553p yesterday, which puts the stock on a forward price-earnings ratio of 18. SG Securities is forecasting a profit for the year of £308m, against last year's £314m which was boosted by a £55m exceptional gain. Decent value.

Pace Micro still has further to fall

If a bidder was ever going to materialise for the set-top box maker Pace Micro Technology, now might be the time.

Pace has issued three profit warnings this year, sending its shares plummeting from about the £4 level in January to the current 24p, unchanged on the day. Its last set of financial figures were, consequently, a disaster with full-year profits down 70 per cent at £13.1m and sales down 33 per cent at £352m.

To top it all, its chief executive, Malcolm Miller, recently announced he was leaving at the end of this year to head a private firm providing navigation systems for boats.

But frustrated investors might have to wait a while yet. Pace Micro was yesterday forced to deny rumours that Scientific Atlanta of the US might consider the business a takeover target.

There have been some positive aspects to the shares recently. Last week Pace's chairman Sir Michael Bett bought 300,000 shares at 16.5p each while the chief technology officer, Timothy Fern, bought 100,000 shares at 23p each. But with little indication that the company's problems are behind it, investors should proceed with caution.

Analysts predict the company will make a small loss this year and that sales will fall to about the £260m level. Avoid.

Ultimate's a growth bet even if it lacks pizzazz

It is fair to say that Ultimate Leisure lacks the stock market pizzazz of some of its larger rivals. For a start, action at the late-night bars group is largely confined to the North of England – hardly the main stomping ground of most City analysts.

And while sector peers such as SFI and Regent Inns have borrowed voraciously to fund their get-big-quick expansion drives, Ultimate has taken a more cautious approach, adding a freehold here and there.

But the Newcastle-based operator is not to be sniffed at. It has proved a useful defensive play over the past few months, notwithstanding the recent wobble on the back of bleaker news from SFI and Old Monk.

Ultimate rightly maintains that its preference for freeholds protects it from leasehold nasties, such as rent hikes and high fixed costs. Plus, its sites could prove useful fodder if it ever wanted to raise significant capital in a hurry.

Ultimate is happy to stick with what it knows best – running entertainment-led bars and clubs in working-class towns, which means it is unlikely to be lured by the excesses of London anytime soon.

Although the group has eschewed a brand template for its 24 sites, it admits there is potential for its "beach-themed" outlets. Swap a surfboard for a bull and you arrive at the group's latest offering, the rodeo-themed Coyote Wild that opens in South Shields later this week.

The news on Friday that recent trading remains "strong" and a pipeline of new openings should ensure that the company's growth momentum remains unchecked.

The shares, up 1p to 233.5p, trade on around 9 times earnings and should have further to go.