Hold fire on overvalued Benfield

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The Independent Online

Investors have been so keen to get their hands on Benfield, the newly listed reinsurance broker, that the group yesterday sold 9.4 million new shares to appease those miffed at missing out. Benfield, set up by the late Chelsea Football Club director Matthew Harding, listed on the London Stock Exchange last week. The offer was 11 times over-subscribed and shares closed up 12 per cent on their first day.

After substantial claims such as those on the World Trade Centre and losses on the stock market, insurers have never been keener to pass on their risk elsewhere. In the business of insuring the insurers, Benfield acts as an intermediary, placing reinsurance cover for insurance groups.

As a broker, Benfield does not take on any underwriting risk, but simply rakes in a percentage of the premiums its customers pay. Premiums have rocketed in the past year and look set to stay at high levels, and Benfield has been enjoying the ride. It had revenues in 2002 of £291m, up 30 per cent on 2001.

Rising premiums do make it more difficult for brokers to find a good deal for their customers, but rates appear to have topped out, which should start to make the market a little more open. And while softening rates (still unlikely for a while) will hardly be good news, they will probably be offset by an increase in business volumes. The company also charges clients fees, which hold up when premium-linked commissions fall.

Benfield is purely a reinsurance broker and this reliance on one market and one potentially volatile earnings stream means its shares will make many people too nervous. The company insists its single-minded focus will help it achieve real growth.

Benfield has proved it can grow through premium ups and downs. It is now the third largest reinsurance broker in the world and there is still plenty of market share for Benfield to take from its rivals. But at 266.5p, the valuation looks a little stretched. It is a strong, well run business, but the interest in the float - the first major listing this year - has pushed Benfield too high. Investors will be able to pick it up cheaper later on.

Fasten your seatbelts if you hold on to Jet2

Jet2, the no-frills airline owned by Dart Group, reeks of "Me2" in more than just name. Back in February, operating a low-cost carrier from Leeds Bradford airport looked a no-brainer to Philip Meeson, Dart's chief executive and main shareholder. The group's passenger charter subsidiary, Channel Express, could run it, offering the good folk of Northern England the chance to escape to sunnier climes. Since Dart's core business-to-business market was under pressure, breaking into the sexy world of cheap passenger flights made perfect sense.

That was then. Yesterday Dart admitted Jet2 was facing a host of new competitors from northern airports who spotted the same opportunity.

Worse, the company that began life flying flowers 21 years ago is having a hard time in its core business-to-business market. Its air freight service flies for Royal Mail, while its distribution arm supplies supermarkets with chilled products. Costs are increasing, but the prices it charges its big customers are not.

Dart may be hoping for extra business now that the Royal Mail has decided trains are too unreliable, but the outlook is uncertain. After a good run, the shares reacted badly to broker downgrades, nose-diving 37.5p to 180p. Hold.

Cannabis-based drug lifts GW Pharmaceuticals to new high

Higher and higher. That's the shares in GW Pharmaceuticals, of course, not the patients trialling its painkiller, an under-the-tongue spray made from cannabis. They are on strictly regulated doses and the company stresses this is a serious new medicine aimed at relieving many of the symptoms of multiple sclerosis and the pain of cancer sufferers.

The company is also keen to assert it is not, as cynics argue, a stooge for a Government that really wants to legalise the use of cannabis entirely. If anything, it seems the Government - which is being supremely helpful to GW by speeding up various regulatory processes - is hoping to get a medicine on the market to neutralise one of the powerful arguments in favour of legalisation. The product, to be called Sativex, could be launched by the end of the year and be available on the National Health in 2004.

The moment of truth is approaching. The UK medicines regulator is examining a lorryload of trial data now. This evidence of the drug's efficacy has not yet been published in a scientific journal, so how can investors be confident the regulator won't find fault, refuse to approve the drug and decimate the GW share price? The answer is the £25m deal with Bayer, the German drugs giant which will market Sativex in the UK. Bayer would not have signed up without being confident itself.

Sativex for MS and cancer sufferers could realistically have sales of £250m a year in Europe, which wouldn't be enough to justify the current GW share price. But there is hope for licensing the secure dosing technology; for sales outside Europe and for use in other conditions; and the development of other cannabis-based medicines. It is still worth a gamble.

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