CGNU remains a solid insurer to hold

CGNU; CAT; Osmetech

The high-profile collapse of Independent Insurance and the continuing crisis at Equitable Life have demonstrated that insurance – both general and life – is not always a safe business. Small wonder then that CGNU, the UK's largest insurer, was boasting about winning new customers who are migrating to what they perceive as the better-funded players in the industry. It backed up the claim with a record set of new business figures.

CGNU's pensions business appears to be going gangbusters in the UK, where it has 11 per cent of the market. The group sells pensions right across Europe, but it was really a 23 per cent increase in domestic sales, to £668m, that helped its interim life and pension sales climb 19 per cent, beating expectations, to £6.3bn.

But the shares fell on the figures. It's easy to see why. The introduction of stakeholder pensions in April, along with the simultaneous expiry of certain tax breaks, has put the UK life assurance industry in a state of flux. Analysts were fearful that CGNU's domestic gains reflect a decision to chase share by writing lower margin business, or paying hefty commissions to financial advisers. All will be revealed when CGNU posts financial results proper in two weeks time.

The overseas business looks pretty impressive, too. Richard Harvey, the chief executive, has been pursuing so-called bancassurance joint ventures with banks on the continent to lift CGNU's share of the European savings market as governments encourage private pension provision. Through an alliance with Bancaja, a Spanish bank, it has become the country's number-five life insurer. That, along with a similar alliance with the Italian bank UniCredito, saw sales on the continent climb 29 per cent to £2.4bn.

UBS Warburg slightly upped its forecasts for interim operating profits (in continuing operations) to £904m, a rise of 13 per cent on the previous year, with full-year operating profits likely to touch £1.94bn.

On the downside, CGNU is not immune to falling stock markets; the declining value of CGNU's own equity assets remains a drag on the share price. At least Mr Harvey says the integration of CGU and Norwich Union, the founding companies, continues apace, although he does not anticipate that existing synergy targets will be beaten.

The shares, down 4p at 966p yesterday, have staged a small recovery lately having slumped since January as sectors such as banks and pharmaceuticals became more fashionable as safe havens. The stock remain a solid hold.

CAT

It has been a dizzying six months for Cambridge Antibody Technology, the biotech firm, since this column warned that the sky-high rating of its shares made it an unattractive investment. Then, the stock was over £30, now it is a little over half that, having gone as low as 1,338p. This week, analysts covering the stock have been revisiting their forecasts, but their conclusions remain bewilderingly disparate.

CAT has a technology to grow antibodies – the infection-fighting proteins produced by the body's immune system – from human cells in the lab. These antibodies are sought after by pharmaceutical companies, looking for treatments for conditions ranging from rheumatoid arthritis, through allergies, to scarring. What it doesn't have are any drugs on the market, or any profits. The latest predictions for break-even suggest 2006.

Analysts reckon CAT shares should be worth anything between £15 and £40. CSFB is at the top of the range, but is keeping an eye on CAT's peers on Nasdaq. They have suffered in the wake of disappointing second quarter results from US biotech leaders. CAT deserves a premium to its rivals because it has a more advanced pipeline of drugs, but it could stay in the doldrums as investors bring it back into line.

In truth, the medium-term share price will reflect the battle between gloomy sentiment towards the biotech sector and what should be pretty good news from the company. New deals with major pharmaceutical companies – where CAT shares the costs and the spoils of developing antibody-based drugs – are coming at the rate of five a year. Its arthritis drug, already in Phase III trials and forecast to have peak sales of £618m a year, is proof of CAT's technology. The shares, up 5p to 1,805p, no longer look too pricey to have a flutter.

Osmetech

Investors with a good appetite for risk might smell a bargain in Osmetech. The firm has developed an "electronic nose" able to sniff out the micro-organisms that cause diseases such as urinary tract infections (UTI) and vaginosis.

The US Food & Drug Administration appears on the verge of approving the e-nose for use in UTI detection, a market currently worth half a billion dollars, worldwide. Longer term, the company hopes its technology can be adapted to detect pneumonia.

Osmetech shares are at bargain basement prices after the biotech sell-off, and were unmoved at 11.75p yesterday despite some bullish comment with full-year figures. These were bang in line, showing a £4.4m loss for the year to April.

The company has always said it will need a new cash injection to move to the next stage of development. It should have little difficulty refinancing when FDA approval comes through in the autumn. Chief executive James White is also confident of bagging some upfront cash from licensing partners who will make the e-nose and market it to health services. Worth a punt.