Put a premium on high-flying Amlin

ASK a hot tip to taste success; Patience required on Axis-Shield

Amlin is the Lloyd's of London insurer that got the cream, having made the most of rising premium rates in the past couple of years.

It smashed all expectations yesterday by posting a 248 per cent increase in its pre-tax profits to £63.3m. When we tipped the company in November at 102.5p, we expected £66m profit for the whole year.

But all good things usually come to an end, and with signs that premium rates are softening in some areas, such as in aviation and war insurance and some areas of commercial property insurance, things will undoubtedly slow.

Amlin is a more broadly based insurer than counterparts such as Goshawk and Kiln, which focus on international property and casualty insurance. It saw premiums rise an average 7 per cent across all lines of business this year. In aviation, Amlin is the market leader, which means it sets the rates other insurers follow, allowing it to keep margins high. The company also says rates in some areas, such as US liability and marine insurance, are still rising strongly. And it has £530m of premiums in the bag and yet to come through as earnings.

While Amlin can be smug about its good reserving and underwriting, it has also been very lucky. There have been no hurricanes, floods or other major catastrophes to claim on its funds, so it has banked the premiums it has collected. This has led to a combined ratio - what insurers pay out in claims as a proportion of premiums - of 83 per cent. Compare and contrast with Royal & SunAlliance, which said yesterday that a major achievement would be getting its ratio to 100 per cent. Of course, you never know what might be brewing, and Amlin's gravy boat could be upturned by events outside its control.

Amlin shares are trading at about 1.8 times its 2003 net assets. That makes it expensive in its sector, which trades on average at 1.5 times. But Amlin's capacity for next year is still growing, there is plenty of premium collected that is still to filter to the bottom line, and rate softening is not universal. For a company this well capitalised and with its underwriting spread and strengths, there is still growth to get in to. Keep buying.

ASK a hot tip to taste success

There is a new restaurant just opened in Wimbledon, south-west London, an American-style grill specialising in "quality hamburgers, chicken and ribs". The Investment Column can't vouch for the quality of the food at Jo Shmo's, but we reckon shares in its parent company, ASK Central, look pretty tasty.

It is just 10 years since the first ASK pizza restaurant opened in Haverstock Hill, north London, and the company now has 104 of the brand across the UK, plus a further 50 pasta restaurants under the Zizzi name it created four years ago. Jo Shmo's is a third brand (aimed at towns already stuffed with Italian eateries), and though it is far too early to say whether it will take off, it shows that ASK is keeping an eye on the long-term.

And in the immediate future, there are some 15 openings to be done before the end of the year. The company thinks it can more than double the number without over-feeding the market. Openings, which cost about £500,000 a pop, are now being paid for out of cashflows and the group has no debt. Indeed, the group hiked its dividend yesterday after posting a 12 per cent rise in interim profits to £8.5m, although the pay-out remains derisory. This is still a growth stock.

The company is vague on current trading, but the trends are clear: disappointing in the tourist-starved central London, where ASK has 15 restaurants, but growing fast in the North of England.

The founding Kaye family's taste for selling shares will always hold this stock back, as will its listing on AIM rather than the main market, but at 153.5p the shares trade on 11 times earnings and look value for money. Buy.

Patience required on Axis-Shield

What's the diagnosis? The long-suffering shareholders at Axis-Shield, which makes diagnostic tests and testing kits for doctors and medical laboratories, got another sharp stabbing pain yesterday. Interim results, with a loss of £4.3m, were worse than had been expected. Sales in the US have been hit by the fall in the dollar and there was higher than forecast spending on development of its new kit for doctors' surgeries.

And what's the prognosis? Management is cheerful, saying its £9.2m cash, income from its first-generation doctors' kit and the dramatic growth of its new blood test for homocysteine (a way of predicting heart disease) will see it through to profitability.

It's impossible to be sure, though, and Axis-Shield has suffered from chronic underachievement. Its recent agreement with Abbott to create new diagnostic tests for the US giant's 17,000 laboratory machines is a breakthrough, but the development costs will be a drain on resources before the pay-back in a few years.

The launch date for the next-generation doctors' kit (which will initially combine while-u-wait blood tests for diabetes and bacterial infections) has slipped a bit and there are questions over who will agree to market the product for Axis-Shield.

At 187.5p, the shares are not noticeably cheap, and investors should stay in the waiting room for now.