Still no miracle cure for Celltech

Dig in at Wyevale and hope for a late bloom; Investors should learn the lessons from BPP
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The Independent Online

Shares in Celltech, the UK's biggest biotech group, plunged 20 per cent in a day when Pfizer, the world's largest drugmaker, said last November that it would abandon a multi-million pound deal to develop Celltech's promising rheumatoid arthritis (RA) drug. The news didn't initially look like "an unexpected opportunity" for Celltech, but that was how it was being spun by yesterday's annual results.

In the intervening period, Celltech has largely brought the City round to its optimistic view. Goran Ando, chief executive, was the executive at Pharmacia who signed the deal that Pfizer, when it acquired Pharmacia, tore up. He believes there is room for another RA treatment of this class, even though it will be the seventh on the market when it launches in 2007. More importantly, he is enthusiastic about developing the product, called CDP870, as a treatment for Crohn's disease, a nasty bowel complaint, and psoriasis, the skin problem. As with all biotech projects, there are no guarantees that CDP870 really will get on the market, and the drug has only shown equivocal results so far in Crohn's. However, results in RA are due within weeks and are likely to be positive. With four big pharmaceuticals companies lining up to look at the data, Celltech should sign a new partner by mid-year.

There are differing views on how lucrative a new partnership deal might be and on the ultimate sales of CDP870. But Celltech at least will not have to tap shareholders to keep the work progressing. It can pay for its risky biotech work thanks to a cash generative drug marketing business selling cough and cold medicines such as Tussionex. That drug could come under threat from copycat rivals in 18 months, but other products, such as Dipentum for colon ulcers, are growing.

On a simple multiple of earnings, Celltech shares look expensive, reflecting optimism for CDP870 and the wider biotech sector, and risk averse investors will want to wait for clarity on the RA partnership deal before chasing what is, after all, still a long-term story.

Dig in at Wyevale and hope for a late bloom

Wyevale Garden Centres has been losing ground to the do-it-yourself "sheds" for the past few years. So in an attempt to uproot its image as a mere plant seller, it has set about giving its uninspiring greenhouses a makeover in true Carol Smillie fashion. It hopes that the revamp, which will involve six sites this year and another 10 next year, will help it to blossom into a worthy competitor to Dobbies, its smaller rival that likes to think of itself more as a day out for the family than simply somewhere to pick up the odd shrub.

Yesterday's final results from Wyevale showed that it has sowed the seeds of change, with pre-tax profits coming in a whisker ahead of expectations at £23.3m. Current trading is strong, with like-for-like sales up 7 per cent in January and February, but its green-fingered clientele don't really get their wallets out until the spring. Excess rain or more freakishly cold weather could make or break its first half numbers, when it makes most of its profits.

Although the group is still banking on finding suitable sites to buy, most analysts reckon its money will be better spent on overhauling its 100-odd sites. Expanding the ranges of goods on sale should entice more customers and get them spending more. Adding or improving restaurants will also help give an edge over the omnipresent DIY warehouses.

The shares, down 4.5p at 376.5p, are unlikely to bloom until the estate is in a better shape. Existing investors should dig in for the long haul, but new ones might want to wait for the improvements to bed down.

Investors should learn the lessons from BPP

For a company worth less than £200m, BPP's expansion programme over the past five years has been ambitious, to say the least. The company is a professional education and training company, offering schools for accountants, actuaries and others studying for financial qualifications. The bulk of the spending has been in establishing a BPP law school in London, where enrolments have now surpassed expectations and profits more than doubled in 2003. Spending on a second school in Leeds, a first toe in provincial waters, will hold back results in 2004, but after that the company's major work is done.

BPP will benefit from economic recovery. It will slowly start to enrol more accountants on its long courses, and eventually more foreign businessmen at its continental Europe language schools. Best of all, with investment banking recruitment seemingly back on the up, the core financial training business ought to swing back to profit strongly with graduate recruitment in the autumn.

BPP has now demonstrated it can generate a quick pay-back. This highly cash generative business has an attractive 4.7 per cent dividend yield for the coming year. Readers who followed our advice to buy in August 2002 are sitting on a 35 per cent profit. There is still more to come. Buy.