Too many clouds on the Amvescap horizon

Amlin is a risky prospect; Podia has raced on too far
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The Independent Online

The long-term outlook for Amvescap remains bright, or so it tells shareholders on the front of its annual report this year. "Demographic shifts and government reforms worldwide point to a dramatic increase in retirement savings, the driving force of our industry." The immediate outlook for the fund manager's shares remains overcast, though.

The City was yesterday revising down its forecasts for the coming year as Amvescap confirmed that 2002 has started badly. Earnings in the first three months almost halved from the year before. Sales were down 12 per cent. Pre-tax profits were down 39 per cent to £60.6m. It was awful.

Most of the group's business is selling mutual funds in the US and equivalent savings products elsewhere, including ISAs in the UK. The bear market of the past two years has scared savers into seeking out safer havens for their money. Amvescap has reshuffled its fund management team at Perpetual, a subsidiary, and sealed a distribution deal in Continental Europe with Deutsche Bank, but buying the shares remains, fundmentally, a gamble on a significant upturn in the markets.

A lot of recent analysis suggests that the future rewards from traditional investments, equities mainly, but bonds too. Sceptics argue that all this sort of talk is symptomatic of the bottom of a bear market; others reckon that the longer-term rewards from running investment products may be lower than hitherto. Even if markets do rebound strongly later this year, and City traders lose their long faces at last, it will take longer to tempt Amvescap's retail investors back to its products.

Amvescap is still tending to disappoint rather than provide happy surprises. Down 1p to 809p yesterday, the stock trades on an over-optimistic 22 times HSBC's earnings forecast for the year. Avoid.

Amlin is a risky prospect

Amlin is as well placed as any insurer to roll up its sleeves and count its burgeoning profits in the next couple of years, as dramatic premium increases feed through to the bottom line.

The largest UK insurer operating purely through Lloyd's of London specialises in big ticket insurance and reinsurance deals on property, aviation and marine risks. It doesn't bother with steady but boring retail insurance.

This heady combination has led to a substantial loss from the attack on the World Trade Centre. Amlin calculates the liability to be £64m, which led to a £67m net loss for 2001.

Despite its risky portfolio, Amlin's underwriting track record has been sound compared to its peers. Its combined ratio – which measures profitability – stands at 117 per cent including WTC losses, far higher than any insurer would want since the ratio must be 100 per cent to hit profitability. Still, it compares to an average ratio of 140 per cent at Lloyd's.

Amlin has been quick to take advantage of the recent radical surge in premiums. It raised £150m via a rights issue and loan notes last December and has increased its capacity to write new business by 40 per cent this year. Numis Securities predicts Amlin's profitability will be £33m this year and £65m next year.

Amlin's shares have ricocheted in recent years, and have fallen a third to 84.5p this year as the market focused on past losses and future risks, rather than premium hikes.

Amlin trades at just 1.2 times net tangible assets, which is slightly less than the Lloyd's average, but given its risk profile, that seems fair value.

Podia has raced on too far

The collapse of the Kirch media empire, and the likely sale of the broadcasting rights to Formula One, could yet be an opportunity for Podia. The group is a marketing, events management and public relations group focusing on top-flight motor racing and a period of disruption could allow it to capture new business, especially if the racing teams gain more power. Podia has relationships with most of the major teams.

The group has risen from the ashes of the old e-comsport, one of the most disastrous of dot.com disasters. It has shut down the old failed business and fired staff, sending the group to a £2.2m loss last year, but significantly less than the £8.5m the previous team wasted in 2000. The PR firm run by the racing commentator Tony Jardine proved a particular gem.

The strategy to build a broad sports marketing group looks sound. But be warned: the group plans to use the shares as currency to make more acquisitions, which will "widen and deepen" its relationship with Formula One and move it into new areas, too.

Even the house broker, Collins Stewart, is only predicting 2.3p of earnings by 2003, and the shares, at 27.5p each, look to have got ahead of themselves. Sell.

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