The Week In Review: Just take the money and run

ROYAL & SUN Alliance, the insurance company, has got the okay from shareholders for its £960m rights issue, but this fundraising exposes as many problems as it resolves.

Some £800m of the cash is going to top up reserves against future losses. By the end of 2005, the plans to reduce premiums, free capital, bank the rights issue and write new business will leave the company bringing in fewer premiums and sitting on only an extra £55m for a rainy day. This makes for a total surplus capital of £355m. One flood could wash that away.

The rocketing insurance premiums of recent years ago seem to be topping out in many areas of the industry, and the territories on which RSA plans to focus - Canada, Scandinavia and the UK - are not known as highly profitable insurance areas.

Shareholders have until 15 October to decide whether to buy one new share at 70p for each share they already own. This may look an opportunity to gain new shares on the cheap, but only if you believe the company won't forever be looking over its shoulder for liabilities from the past.

Those who sold their rights instead could get about 22p a share. Take the money and run.

Barratt Developments

Bigger does seem to be better in the housebuilding industry. The time and expense of the planning process, in particular, is squeezing smaller, less flexible players out of the market and forcing consolidation, although Barratt still plans a policy of organic growth. Their shares are among the cheapest in the sector, yet the company remains a solid growth machine. Buy.

Brit Insurance

Shareholders in Brit Insurance handed over £350m in two rights issues that helped the company regain its feet after the US terror attacks and take advantage of rising premium rates. Brit is not delivering the returns it should be and appears to have raised too much capital. Don't let go of the shares yet, since the new management team may get the balance right. Hold.

Alizyme

It is still all going right for this little biotech company. Alizyme has three products ready for the last phase of human trials and looks likely to become one of the rare European biotechs to have successfully developed and launched a drug. The next major news may not be until the middle of next year, when it licenses one or more of the three drugs, but Aizyme is worth backing for the long term. Hold.

Smiths Group

Military aircraft spending in the US is strong, but the aerospace division, Smiths Group's biggest, has seen operating profit fall because of the civil aviation downturn. The company is instead spotlighting two new areas: what it calls "detection" (mainly security systems for airports and other bomb or bioterrorist targets) and its medical devices business. Both divisions are likely to be bulked up through new acquisitions, and investors should take the long view and buy in.

Corin

A stemmed cormet sounds as if might be an exotic bird, but actually it is a new type of artificial hip developed by Corin. There was no sighting of this creature in Corin's results this week (US regulators want more trials), and investors got very twitchy as a result. Only a hold for now.

Emap

Consumer magazines have been the star performers in this media conglomerate, but there are signs the best may be over. The company complains that advertising "lead times", how far in advance advertisers decide whether to take space, have been getting shorter. And there is the nagging doubt over Emap's radio strategy, which is that it wants to be a consolidator, only the prices of radio companies now are, it says, "hyper-inflated". Sell.

Ricardo

Two trends in the car industry: one, long-term, is for manufacturers to be forced through environmental legislation to develop greener vehicles; another, immediate trend is for the scaling back of production and work on new models as profit margins dive across the industry. Ricardo advises most of the major car makers in areas of engine design, so the first trend is good, but the second makes its shares a sell.

Cambridge Antibody Technology

The biotech group is struggling to come up with a coherent plan to get the company to profitability in five years. Royalties from Abbott's Humira (a rheumatoid arthritis drug with blockbuster potential, developed with CAT technology) will not be enough, and while talk of buying in other people's drugs is all very well, almost every drug company is chasing these elusive products. Not even for the brave.

Caffe Nero

The UK coffee house market has not collapsed or even reached saturation point, as sceptics predicted and industry experts reckon on more than 10 per cent growth a year for a while. The sheer rate of growth available makes it worth keeping Caffe Nero shares in the pot.

Maiden

The billboard advertising group Maiden is finding its profit margins under pressure and the prospects appear mixed. Aggressive new players such as Van Wagner are in an already competitive environment, especially in the London and South-east "golden triangle" which accounts for half Maiden's panels. Without a significant upturn in the advertising market it is difficult to see from where and when significant growth is going to come. Sell.

FirstGroup

The UK-based transport operator is winning lots of contracts in school buses in the US, while its UK bus business is also performing strongly. Longer-term, it is sure to benefit from the roll-out of congestion charging. Rising wages and other costs will keep the brakes on earnings growth in the present year, but there is a dividend of 4 per cent. Hold.