Old Mutual is still a work in progress

Old Mutual; Aga Foodservice; Axis-Shield

A buoyant stock market, which surged 11 per cent in the first half of the year, was behind a forecast-busting set of results from one of the world's biggest asset managers yesterday. The company in question was Old Mutual. The stock exchange was Johannesburg's.

The market has wiped £1bn off the value of the group in the last two months. Analysts had feared what the US bear market has done to the value of funds managed by UAM, Old Mutual's recent acquisition across the Atlantic, and to its customers' willingness to give it new cash to manage. In the event, UAM saw cash inflows of $2.8bn in the six months to June. Funds under management in the UK, where Old Mutual's asset management brand is Gerrard, were down only in line with the UK market. And in South Africa, from where Old Mutual transferred its headquarters in 1999, storming equities gains underpinned the group's performance.

Old Mutual's interests span fund management, insurance, banking and broking. Operating profits were up 10 per cent in rand terms. That meant a slight fall, from £457m last year to £455m, when profits were translated from the weakened South African currency into sterling. Acquisitions like UAM mean non-South Africa business now accounts for more than 20 per cent of profits, but that is where it is likely to stay for the time being. The group said yesterday it will focus on stoking the home fires for the time being.

There is much to be done, with the group's efforts to link the marketing of its life insurance and banking products still at an early stage. It also must recover some lost ground in sales of pension income products. Outside South Africa, a complex restructuring of UAM, while ahead of schedule, is only three-quarters complete. The share price reaction yesterday, down a ha'penny to 136p, reflected the fact that Old Mutual is a work in progress. The work has not been derailed by the US bear market, but there is no hurry to buy.

Aga Foodservice

Bill and Melinda Gates have one. So, too, does Julia Roberts. But if Aga's new ad campaign succeeds, the cooker of choice for middle class Britons and a few ultra-rich Americans will become an object of aspiration for the loft living set, not just in trendy Clerkenwell, but from TriBeCa to Berlin and beyond.

Yesterday Aga unveiled its first set of results since the £786m disposal of the pipe systems business and the subsequent £335m share buyback. Sales in continuing businesses gained 13 per cent to £106m, while operating profit before exceptional costs and goodwill grew 22 per cent to £9.3m.

To be fair, Aga's plans for growth hinge on a bit more than just spreading the appeal for its famous range of always-on cookers. That would be fairly simple, notwithstanding a £7,000 price tag. The £29.5m acquisition in July of Fired Earth, a furnishings chain, will add retail outlets, particularly in London where the group previously had no presence.

More difficult will be finding bolt-on deals of complementary kitchen appliance brands and improving overseas sales channels without diluting Aga's premium brand status.

The new target to raise Aga's unit sales by 40 per cent to 10,000 in 2003 is feasible, but subject to the possibility of a downturn in the housing market. The commercial product range, which sells to hotels and restaurants and public institutions, offers a partial buffer to a consumer slowdown. Orders from schools and hospitals should benefit from Gordon Brown's hefty public spending plans through 2004.

With around £100m in cash and a willingness to borrow that much again, the fate of Aga's stock is tied to its management's ability to deal wisely. The shares, down 5.5p at 255p, trade on a full rating of 20 times forecast earnings per share. Though the buyback will have flushed out any sellers, there is no catalyst to drive the rating higher. Hold for now.

Axis-Shield

Axis-Shield, developer of a range of medical tests for diagnosing people at risk of complaints such as heart disease or Alzheimer's, raised a cheer in the City yesterday with news that it was heading into the black earlier than expected.

Half-year figures showed it made earnings of £1m before interest, tax, depreciation and amortisation of goodwill, and analysts now reckon it will break even at the pre-tax level early next year. There was strong revenue growth across Axis-Shield's product range, and the group was able to plough 28 per cent more cash into research spending, which should result in new tools to help doctors to do increasing numbers of on-the-spot tests.

The group has been dogged by worries that the homocysteine test for heart disease, its lead product, may yet prove ineffective. Medical studies have never been unanimous on the subject, and the industry is awaiting results from a giant international study in 2003. The company counters that revenues from the test were up 56 per cent in the first half and 1.7 million tests were carried out. Doctors are well aware of the controversy and obviously judge the test worth doing. Even if the 2003 study is negative, Axis-Shield is well diversified; around £3m of its £21.5m revenues come from the test.

Axis-Shield shares have collapsed from more than £11 at the height of the New Economy boom last year, but their demise has been unfair. The company is not a high-risk play, and looks like providing 20 per cent-plus annual growth for the foreseeable future. The shares, up 18.5p to 315p, should be high on investors' shopping lists when the sector begins to recover.