Don't tangle with the Brambles

Brambles; Amersham; Smartlogik
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The Independent Online

Now available in the UK: the world's biggest transporter of industrial pallets.

Buried inside GKN, the engineering conglomerate run by Sir CK Chow, its business of hiring out and moving these crates has been dominating most of its main markets and provided double-digit growth. This week it has merged with Brambles, GKN's Australian joint venture partner, Sir CK is moving over to the new company, and the whole shebang has been floated in the UK.

Brambles Industries made its debut yesterday, and it was an inauspicious one. It is now a broad logistics group, combining the Chep pallets unit with a less attractive industrial plant and transport hire business (from Brambles) and the Cleanaway waste management service (from GKN). Engineering sector investors didn't fancy hanging on to their free Brambles shares and the stock, which began trading at 390p, ended down at 361p.

It is not a good time to be looking to pick up stock from these reluctant shareholders. Global growth is slowing – UK manufacturing is officially in recession – and there is no clear picture yet of how far we are from the bottom of the economic cycle.

At the same time, Chep is investing heavily in new technology to help track pallets on their journey, improving customer efficiency, and expanding the group into the US and continental Europe. It remains unclear what effect this could have on margins.

Brambles is also quitting some non-core businesses, but the divestment programme is running behind schedule and could prove disappointing.

Earnings per share are projected to be flat over the next 12 months because of increased capital expenditure and a larger tax bill. Brambles shares are on a multiple of 25 times 2002 earnings, which is historically high and doesn't account for the economic risks. Avoid.


Amersham, maker of medical screening and biotech research equipment, has dropped the Nycomed from its name since this column rated it a long-term buy earlier in the year. Our recommendation remains in tact.

The company unveiled some impressive interim results yesterday, beating market forecasts with a pre-tax profit up 6 per cent at constant exchange rates, coming out at £137.8m. Sales were £782.9, showing underlying growth of 13 per cent. The most pleasant surprise was the scale of sales growth at Amersham's imaging business, where it has a broad range of snazzy technology to help doctors diagnose disease. This area will be a crucial driver of future growth, as the population of the developed world ages and as nervousness over being sued encourages doctors to back their diagnoses with scientific scans.

The company stuck to its line on the flotation of AP Biotech, its life sciences joint venture: no chance in the current, depressed market. It is more likely now that it will simply buy out Pharmacia, its partner. Operating profits at the unit were down 6 per cent on last year, when the mapping of the human genome sparked unprecedented effort in gene sequencing. But AP Biotech's research costs have peaked and growth should resume.

A rise of 20p to 585p yesterday puts Amersham on 23 times this year's expected earnings. It is a good stock at a reasonable price. Buy.


Smartlogik's FIRST set of figures as a standalone business are nothing to write home about. In the three months to 3 June, sales from continuing businesses came in at £1.7m – down from £2.2m in the first quarter. Second quarter operating losses totalled £6.8m.

The company, which sells search engine-style software, claims the dip in sales was due to disruption surrounding its restructuring and transformation from the old Bright Station and the exit of Dan Wagner, the colourful founder who was widely disliked in the City.

However, its technology is similar to that of Autonomy, which has repeatedly warned that its customers are taking longer to decide whether they want the kit. The risk is that, since Smartlogik is moving away from quarterly reporting, investors will have a long wait to find out how deeply market conditions are biting.

Thanks to a £12m fundraising last month, immediate cash concerns have been eased and management believe it can comfortably last out to profitability. But they won't say when that might be.

Smartlogik still has to shake off its chequered history, which won't be easy at a time of difficult economic conditions. The the stock is trading on just 1.4 times forecast sales of £10m for 2001, but there is no hurry to buy. The new Smartlogik has a smart management team but the jury is still out.