Investment Column: Booker's prospects are looking cloudy

BTG; Bluebay Asset Management
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Our view: Hold

Share price: 48.73p (+0.02p)

Apparently all those tedious campaigns by the nanny state to get us all eating more fruit and veg are having some impact, at least if Booker, Britain's biggest cash and carry wholesaler, is to be believed.

Buoyant sales of such healthy fayre (up 46 per cent) was a big factor behind the apparently positive trading update issued by the group yesterday. Meat was another winner (up 10 per cent) while cigarettes (up 5.9 per cent) held their own. Less good news for the health fanatics there then.

The overall sales rise of 6.2 per cent, excluding tobacco, and 5.9 per cent on a like-for-like basis, was also boosted by the World Cup. Such numbers, however, are made to look better than they might by the inflation that continues to dog Britain's economy and the policymakers at the Bank of England.

That said, the group is on track to meet forecasts of a full-year profit (pre-tax) of £62.1m against £57.2m last time. More than handy in the current climate. Various promotional initiatives have borne fruit and the group's venture into India is holding its own.

We said buy in April, encouraged by this and the way the company has reduced its debt so that it now has net cash on its balance sheet. And the shares have performed well enough for us without, well, exactly reaching for the stars. This despite the fact that the group sits on a relatively undemanding rating of 13 times 2011 forecast earnings. Perhaps it is simply failing to effectively communicate its message. Or perhaps the fly in Booker's ointment is the outlook.

The World Cup, which provided such a welcome fillip to the figures, is long gone, and with the coalition preparing to swing the axe with wild abandon, a business like Booker is not going to find things easy in the coming months. Its performance appears solid and we wouldn't jump ship just yet. But we wouldn't want to be buying more either. Hold for now.


Our view: Buy

Share price: 224p (-2.8p)

Unattractive as it often is to blow one's own trumpet, sometimes the end justifies the means. In the case of pharmaceutical group BTG, our tip to buy last November when the price was a lowly 183p is a case in point. Wise investors following the advice have seen the shares rocket by more than 20 per cent (albeit with some slips and trips along the way). And there is more to come.

The latest news from BTG is that the group's Varisolve varicose vein treatment is set to go ahead with pivotal phase three trials in the US, andif all goes according to plan the drug could be in line for approval in 2013.

The potential market for Varisolve is huge. Chris Redhead, an analyst at Ambrian, estimates from interviews with US doctors that Varisolve could replace more invasive treatments in as many as half of cases, and be used on a supplementary basis in perhaps 80 per cent. "We believe Varisolve could easily generate at least $270m (£173m) in the US reimbursed market, rising to well over $500m as the product penetrates the substantial, but largely untapped, cosmetic market," Dr Redhead said.

BTG has drawbacks. It does not pay dividends, so investors are reliant on share price rises. And, unusually for a group of its size, it is reliant on news to give the stock a lift. But with steady news flow expected from Varisolve and other programmes this year, there is plenty of headroom. Keep buying.

Bluebay Asset Management

Our view: Strong buy

Share price: 345p (+24.5p)

Bluebay Asset Management has had a pretty decent year. Pre-tax profits soared by 183 per cent in the 12 months to June, while assets under management rose by 41 per cent. There was also a 131 per cent increase in the dividend, which should have cheered income investors. Bluebay sees net inflows of $5bn (£3.2bn) to $8bn in the coming year, with performance likely to be skewed towards the second half. Encouragingly, the firm saw $850m of net inflows across a range of funds over the first two months of the new financial year.

All in all, then, Bluebay seems in fine fettle. And yet the shares haven't exactly been racing ahead of others in the fund management sector. Bluebay is up nearly 10 per cent since the beginning of this year, while Ashmore is nearly 18 per cent better off over the same period. Of the larger conventional asset managers, it has fared a little better than Schroders, but is broadly in line with Aberdeen Asset Management. It trades on an undemanding multiple of under 12 times forecast earnings for 2011, falling to 10 times the 2012 forecast. The prospective yield goes from just above 6 per cent for 2011 to nearly 8 per cent for the year after. A strong buy.