US Edition Shire
819p
Questor says Buy
It has been quite a week for Shire. The UK's third largest pharmaceutical company saw its share price rise 16pc in three days following its third-quarter results.
The impressive figures showed a 28pc gain in revenue to $779m (£479m) and, perhaps more importantly, that combined sales of Shire's newer drugs had overtaken Adderall XR, the company's top-selling attention deficit hyperactivity disorder (ADHD) drug, for the first time in more than five years.
Angus Russell, Shire's chief executive, hailed the move as a "significant milestone" and it comes at a crucial time for the company. From April next year, sales of Adderall XR are expected to fall as the drug faces competition from generic products. Bearing in mind that Adderall XR contributed $269m out of $779m revenue for the company in the quarter, this is a big deal.
But is now really the best time to invest in Shire? While the growing sales of new products suggest there is long-term value in the company, revenues next year are expected to fall on the back of Adderall's demise.
Shire's biggest hope for the future is Vyvance – another ADHD drug which was launched as a treatment for adults in June – but in the quarter the company lowered its expectations of annual sales of the drug to between $310m-$330m from $350m-$400m.
However, analysts had been expecting the downgrade of Vyvance sales and shares in Shire – despite the rise this week – are trading at a third less than they were in 2007 when the drug was launched.
This means the slower-than-expected sales of Vyvance are already priced into the market.
The pharmaceutical industry has attractive defensive qualities and Shire has indicated that it sees the downturn as a chance to make acquisitions. Shire's future appears bright. Buy.
Hiscox
244½p
Questor says Buy
In the past week, the insurance sector has seen a string of announcements that the outlook is set to get brighter for the industry as premiums begin to rise.
While insurance rates have fallen in the past two years due to fewer hurricane claims, that is all changing with worse-than-expected bills for hurricanes Ike and Gustav this year. The credit crisis has compounded the need to lift premiums next year, as not only have insurers' balance sheets been battered, but also raising further capital to support the amount of business they insure is near impossible.
Hiscox was one of the insurers to announce that the turmoil in the financial markets "has provided opportunities". The Lloyd's insurer, which has recently submitted a request to the world's largest insurance market for the maximum amount of business it can insure, said it planned to increase its capacity from £700m currently, to £750m for 2009.
This is a clear indication of how bullish Hiscox is, especially as it originally intended to decrease this figure to £550m. On top of raising its capacity, Hiscox plans to launch another syndicate at Lloyd's, writing up to £60m of risks.
The FTSE 250 insurer wasn't due to post an interim management statement until November 10 but provided an additional update in a move clearly designed to assure investors it is in a sound position. It revealed hurricanes Gustav and Ike will blow $175m off its profits but as its business tends to largely be conducted in US dollars, the recent weakness of sterling means currency gains will "outweigh any effect from the hurricanes".
Hiscox is a diverse business, covering not just damage caused by natural disasters, but also insuring art, horses, people being kidnapped and held for ransom. It is also a leader in the more "conventional" risks, such as insuring people's homes.
Trading on around six times forecast earnings, Hiscox is one of the best plays in the sector. Now that the tide has turned, buy.
Wolfson Micro
86¾p
Questor says Hold
The silicon chip industry should brace itself for a disappointing Christmas, much like the hundreds of children hoping for a stocking full of iPods and PlayStations.
Despite cutting costs and shedding staff, Wolfson Microelectronics is sharing the festive gloom. The maker of microchips for Apple, Sony and LG has revealed a significant drop in pre-Christmas orders for electronic products is behind a second profit warning in less than a month.
Investors who have seen the Scottish company's share price battered in the past year will not be cheered by the third-quarter profits, down 60pc on last year.
Neither is it very comforting in the midst of a consumer slowdown that the company's market is "100pc consumer focused". There is a sense that nothing more can be done for the moment: Wolfson has already streamlined its workforce and tightened its costs.
But there are signs that the electronics company might be better placed than most to withstand the chilly winter season. For a start, Wolfson has no debt, $90m in the bank and the prospect of a new chief executive from Motorola – Mike Hickey – starting on January 1.
On eight times earnings, the shares do look like a bargain, but it might be wise to save yourselves for the new year sales.
Synergy Health
375½p
Questor says Hold
For a company which specialises in healthcare support services, Synergy Health could have recently done with a dose of its own medicine.
The FTSE 250 company, which sterilises and decontaminates hospitals and medical instruments, has been in the sick ward. Two weeks ago, it sounded a profits warning due partly to increased start-up costs for its new decontamination services units. Higher energy costs were also an issue for its cleaning linen division and new contracts were not giving the group as much business as it had originally hoped for.
However, Thursday's interim results suggest the ailing patient could be showing signs of recovery. Revenues rose 30pc to £133m and the interim dividend was lifted 20pc to 4.2p. Synergy said it is taking steps to identify energy wastage and upgrade to more efficient dryers.
Demand should remain for Synergy's services in the UK and in May, the company is due to open a new facility in China – where there are 20,000 hospitals. Synergy is not completely out of the sick bay, and looks quite well-valued trading on a price earnings ratio of nine times. But hold for the recovery.