BP looks fully priced despite strong oil prices

BTG is a good long-term bet; Ted Baker still a suitable value buy

Oil prices continue to be strong, driven most recently by Opec's surprise production cut last month. This is good for oil majors, such as BP, which provided a third-quarter trading update yesterday.

BP gave out mixed news, with an improvement in refining margins flagged up, while the marketing environment is expected to be "considerably less favourable" than in the second quarter. Petrochemical margins for the third quarter are going to come in below the first quarter and "substantially reduced" from the second quarter.

The update saw BP shares, and those of Shell, stumble back a little yesterday but that was mainly on the lack of really positive drivers from the announcement, rather than bad news as such. The bottom-line was that third-quarter profits are set to rise and come in strongly.

Third-quarter Brent oil prices are $28.38 a barrel, up from $26.03 in the second quarter but still below the $31.49 seen in the first three months of the year. These are historically high prices and at the top of the Opec price target range of $22 to $28 a barrel.

On production levels, BP said that although it had divested some assets that were contributing to output in the third quarter last year, this loss would be made up by its new production from its high-profile Russian acquisition. Production seems likely to be at the lower end of the company's 0-3 per cent output growth forecast.

BP's $6bn-plus investment in Russia to take a 50 per cent stake in a new joint venture company, TNK BP, is the biggest equity investment of the post-Soviet era. Russia has become the world's second biggest oil exporting nation, and sits on the world's biggest natural gas reserves. However, production costs in Russia are much higher than the Middle East, so the strong oil price is particularly beneficial to those with Russian exposure.

So everything looks set for a good set of third-quarter numbers, when BP reports towards the end of this month, but what the market is now worrying about is the fourth quarter and here the outlook, at the moment, is for prices to fall off.

BP shares, down 1.5p to 420.5p, would need to fall below 400p before the stock starts to look attractive.

BTG is a good long-term bet

Excitement is starting to build up again around BTG, the company that owns the rights to clever technology and research, which it then tries to commercialise.

The stock, which rode the dot.com wave but has since fallen back to earth, is starting to get noticed again thanks to one of its products, Varisolve, a surgery-free treatment for varicose veins. BTG has developed a special foam-like substance that can be injected into the vein in an outpatient procedure that can be carried out in a lunch break.

So exciting a prospect is Varisolve that the company's own broker, CSFB, reckons it is worth about 520p a share and has set a £7 price target for BTG - more than double its current level. BTG said yesterday that it expected its half-year results would be in line with expectations, showing a significant increase in revenues and reduced losses.

It is worth remembering that the company is still making a loss and is not expected to turn out a pre-tax profit, excluding the Varisolve impact, until 2006. Furthermore, there is also a question mark over how the ongoing development of Varisolve will be funded. For now, all the options - including raising more money and getting a partner in - are on the table.

But BTG is still enjoying success from its current portfolio, including its haemophilia treatment, BeneFix,which brings in about £11m of revenue. Analysts predict BTG will make a pre-tax loss of about £22m this year on sales of around £41m, with not hugely dissimilar numbers the year after.

While the shares have rallied hard from the 83p low they hit in February, last night's near-4 per cent drop to 333.25p seems a good opportunity to buy. The stock remains, however, one for the long term.

Ted Baker still a suitable value buy

Careful brand management has helped retailer Ted Baker to continue its steady progress towards its stated goal of becoming a global label. A strong performance in the UK across both its retail and wholesale operations, announced in interim figures out yesterday, was complemented by the continued successful expansion into the US.

The company reported turnover up by almost a third to £41.9m and a 53.5 per cent jump in pre-tax profit to £4.6m, for the 28 weeks to 9 August.

The result was well ahead of analysts' forecasts and saw the shares close up 13.5p at 394p, almost double the level of a year ago. The company has successfully employed a strategy of slow and steady progress, including no advertising, and a limited and carefully targeted distribution.

So far, so good but there are concerns the share price is now on the high side. On a price/earnings ratio of 18, the company certainly trades at a premium and will need to maintain its growth rate to continue to give value to investors.

The risks for the company are that the brand becomes overexposed or quality standards drop or that the company embarks on a disastrous expansion overseas. However, nothing in the chief executive, Ray Kelvin's, comments yesterday suggests a change in the company's calm approach and this should ensure the Ted Baker brand retains the ability to generate high-margin, high-return business at ever-increasing levels.

Mr Kelvin highlighted "developing our presence in key overseas markets especially the US" as a key goal for the company.

There is no reason why the successes there to date should not be replicated elsewhere. It may not be the cheapest stock on the retail rack but there is still some value to be had. Buy.