The Investment Column: There is now better value than Christian Salvesen

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The Independent Online

Our view: Avoid

Share price: 68.75p (-6.5p)

Christian Salvesen has been in recovery mode for a few years now. The problem is that there is little evidence of a sustainable upturn at the haulage group.

Yesterday came a fresh setback as Salvesen issued a profit warning. Although it is on track to deliver first half revenue growth of 7 per cent, the company will not be able to achieve a lift of similar magnitude in the second half.

As a result, City analysts slashed their earnings forecasts. They now expect a pre-tax profit of £12m for the year to 31 March 2007, compared with £14.5m previously.

To blame is the failure of hoped-for productivity gains to emerge in the UK, pricing pressures in France and weak end markets in Spain and Portugal - it has a bias towards transporting auto parts on the Iberian peninsula, where business has been far from brisk.

So where now for investors? When this column covered Salvesen earlier this week we were convinced that the good times were about to return to the company. That prediction now seems premature, although the stock is slightly higher than it was then. It is clear that Salvesen is struggling to make much progress.

The group's shares yield an attractive 5.5 per cent, but its ability to cover the dividend from earnings is beginning to look thin. There is better value elsewhere in the market.

Hutchison China MediTech

Our view: Buy

Share price: 190p (+6.5p)

Can traditional Chinese herbal medicines cure diseases such as cancer? Hutchison China MediTech (Chi-Med) believes they can. The Shanghai based group, majority owned by Hong Kong billionaire La Ka-Shing's Hutchison conglomerate, has a library of 10,000 natural substances, many of which have been used for centuries, and is scanning them for medical potential.

Yesterday Chi-Med unveiled an anti-cancer deal with German drugs giant Merck. The collaboration agreement represents a major step in validating the group's claim that traditional Chinese medicines and products have applications in both the global drugs industry and in consumer products. Although Chi-Med did not disclose any financial details yesterday, analysts expect it to deliver short-term income and in the long-term produce success-based milestone and royalty payments. The tie-up gives Merck access to Chi-Med's library of herbs and its top class and low-cost research capability.

Chi-Med has already brought two drugs into US phase II clinical studies in the oncology and auto-imune areas. It also produces and sells traditional Chinese medicines in China through various joint ventures. This gives it exposure to one of the world's fastest-growing healthcare markets.

This provides Chi-Med with a revenue base tipped to hit £32m this year, helping it finance its drug development business. If Chi-Med and Merck manage to bring a cancer treatment onto Western markets it will send the AIM listed group's share price into orbit. The stock is worth tucking away.

HR Owen

Our view: Avoid

Share price: 154p (-12.5p)

Nicholas Lancaster, chief executive of HR Owen, yesterday abandoned his plans to take the luxury car dealer private. He insists that the business would be better off as a fully listed entity and now plans to make a string of acquisitions.

Mr Lancaster, who controls 19 per cent of HR Owen, thereby completed an astounding volte-face. Just two months ago he said he wanted to buy the company, which sells Rolls-Royce and Bentleys, arguing that it lacked the scale to justify a listing. Previous to this, he had spent over a year downsizing HR Owen via a series of disposals which took the number of its dealerships from 40 to 10.

Although the group will remain a publicly listed company, it is clear that Mr Lancaster will continue to run it as if it were his own private fiefdom.

Readers would do well to avoid the stock, despite its impressive 6.5 per cent dividend yield.

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