Good value in store at Debenhams

PowderJect should profit from flu market; Warning: Falling Lavendon shares ahead

We have sold 85,000 pairs of utility trousers, Belinda Earl says triumphantly. Not wanting to appear uncool in front of the smartly dressed chief executive of Debenhams, The Independent quietly asks the press office later just what "utility trousers" are. Big pockets, and lots of them, apparently. What might have been called combats before the war.

Debenhams, the department store chain, has had a trendier feel in recent years, employing high-profile designers and chasing the latest fashions. The sales growth has been robust if not spectacular, and was again yesterday. The latest like-for-like sales are running 3 per cent ahead of comparable weeks last year. Even womenswear, weak in the face of a resurgent Marks & Spencer, is on an improving trend.

Debenhams posted a 5 per cent rise in interim profits to £96.5m and signalled that – having opened its 100th store, in Basingstoke, a few weeks back, it is onwards and upwards from here, with a long-term target of 150.

The group has squeezed suppliers for better deals and also cut internal costs, axeing 250 jobs at head office last autumn. It is prudence with a purpose – the cashflows are strong enough and there is so little debt that, as well as investing £130m to £170m in new stores and refurbishments in each of the next three years, there should be money left over to extend the share buyback programme to boost earnings.

That should support the share price even if some of the froth of takeover speculation goes out of the sector. Ms Earl was talking down the prospect of a bid yesterday and it is more likely that Debenhams will use the fallout from other bids in the sector to pick up parcels of unwanted stores and speed its own expansion.

Debenhams shares look good value on a lowly 9 times earnings. If the UK's consumer boom does come to a grinding halt, at least the group will have its store opening programme to generate growth. If the spending spree goes on, and retail shares bounce back as a result, investors should be quids in. The 4.5 per cent dividend yield makes the shares worth tucking away.

PowderJect should profit from flu market

There are 24 biotech companies traded on the London Stock Exchange, with maybe another dozen or so on AIM. Yet Samir Devani at Altium Capital, can find just one to recommend in his doorstopper of an analysis piece on the sector.

Mr Devani thinks investors should apply Darwinian theory and seek out only those companies financially strong enough to survive without new injections of funds. It is a pragmatic strategy. Many biotechs look undervalued if you weigh the risks that their drug development projects will fail against the riches that could flow if they succeed. However, the market cannot be tapped for new funds and continues to ascribe a negative value to much of the technology and drug pipelines inside biotech companies.

So what is this favoured UK investment? It is PowderJect Pharmaceuticals, which purists might argue no longer fits the description of a biotech company. Controlled by the Labour party donor Paul Drayson, the group turned itself into a vaccines manufacturer through astute acquisitions just before investors got fed up ploughing money into the needle-free injection device that gave the company its name. The group is generating profits from its flu vaccine as rival manufacturers exit the flu market, Mr Devani argues. And PowderJect should have good news soon on yellow fever and cholera products.

Positive newsflow is still important. The battle for control of Oxford GlycoSciences, a cancer drug developer valued at less than its large but insufficient cash pile, has shaken the sector but neither of the two bidders are worth buying, Altium says. Celltech (the victor) has little in the way of clinical trial news this year, while Cambridge Antibody Technology (the loser) may not achieve the expected levels of royalties from its drugs.

Warning: Falling Lavendon shares ahead

Lavendon is the tree surgeon's friend. Under the Nationwide Access brand, it is the UK's biggest rental company for what it calls "powered access equipment", the motorised raised platforms used in tree surgery, building maintenance, construction, sign erection ... anything where workmen need to get up high. The market for such equipment looks like growing strongly as health and safety legislation discourages the use of traditional scaffolding and ladders.

Unfortunately, Lavendon's shares have plunged as fast and as painfully as someone falling off a ladder. The group spent £180m on new equipment in a mad dash for market leadership in the UK and Germany two years ago, only to find the vehicles confined to the depot as German construction and industrial demand went into a tailspin. The group has cut jobs and sent some of its fleet to Spain, France and even the Middle East to ensure it doesn't just go rusty, but a trading update yesterday confirmed what every watcher of the economic weather can see: no sign of a pick up in demand.

Lavendon's £113m debts leave little headroom, despite very strong cashflows. Meanwhile, there is a risk the UK, currently a strong spot, could slow this year. Two private equity houses have shunned the chance to buy Lavendon this year, and so should stock market investors.