The Investment Column: Still time to buy into the Aberdeen turnaround

Our view: Buy

Share price: 187p (-10.25p)

Aberdeen Asset Management has been one of the most remarkable City turnaround stories of the past decade. Just two years ago, there were few that would have touched its shares with a barge pole - understandably unable to see past the split-capital investment trust debacle.

Not only was the scandal threatening to cost the company hundreds of millions of pounds in compensation and legal fees for alleged collusion, but also its retail brand had been in effect exterminated by the saga. Why would any private investor want to trust their money with a company which was at the heart of the Financial Services Authority's biggest-ever investigation?

However, Aberdeen managed to keep itself together throughout this period - a feat for which its founder and chief executive Martin Gilbert can take immense credit. And when the FSA finally settled with the industry over split-caps in December 2004, the damage was not nearly as bad as some had feared.

Since then, Aberdeen has never looked back. Within months, the company had splashed out some £265m on Deutsche Asset Management. Institutional new business has started to rocket as the City quickly forgot about the split-cap mess.

Phoenix, a US asset management company and long-suffering Aberdeen shareholder, must now be kicking itself. It sold its 16 per cent stake last year at a loss. Had it held on it would now be easily back in the black.

Since we first tipped Aberdeen 13 months ago, its shares have risen more than 130 per cent. Over the past two years they have increased almost fivefold.

The company's valuation is now beginning to look a little stretched. However, as yesterday's first half figures show, margins are continuing to increase and the strong momentum behind the business shows no sign of easing up. Although more cautious investors who have enjoyed most or all of the recent ride may now want to consider taking some profits, we can see no reason to change our existing recommendation. Buy.

Interserve

Our view: Hold

Share price: 382.5p (+0.5p)

Had Interserve not pounced on fellow facilities management operator Maclellan yesterday there is a fair chance the group itself would have ended up being bought by a larger player. The tie-up certainly makes sense for both companies. Interserve will acquire Maclellan for £116m in a cash and shares deal (80p of cash and 36p in shares).

It was yesterday unsure exactly what cost savings it will be able to produce from the tie-up apart from the immediately obvious - saving money by closing Maclellan's head office and cancelling its AIM listing. Instead, it stressed "revenue synergies" as the main reason for the deal. To the man in the street that means the two companies will be able to sell their services to one another's client bases.

This can be achieved because Maclellan and Interserve to a large extent occupy different parts of the facilities management world. Maclellan is focused on the private sector and specialises in providing cleaning and security services while Interserve gets the bulk of its business from the public sector.

According to Interserve's management, the deal will be earnings enhancing in 2007, the first full year of its existence. It will also be cash generative in the same year. That means the takeover will produce cash after the interest on the money Interserve has borrowed to do the deal is paid along with the dividend on the new shares issued to Maclellan.

Assuming shareholders approve the transaction - they almost certainly will - the combined group will trade at around 12 times forecast earnings for 2007. That may seem cheap but investors must not forget that Interserve has a sizeable pension fund deficit. At the last count it stood at £130m and accounted for around a quarter of the group's market value. An update on this front is expected alongside the company's interim results in September. For now, Interserve is just a hold.

Oxford BioMedica

Our view: Avoid

Share price: 30.5p (+0.5p)

Oxford BioMedica shares have been on the advance in recent weeks. Yesterday they ticked 0.5p higher to 30.5p after a mildly positive piece of news about the biotech's Retinstat product. The drug, for the treatment of muscular degeneration, is in its infancy but is by no means the company's lead product. That is cancer drug TroVax. OXB believes it can reverse tumour growth using a genetically modified virus which helps the immune system.

At present, the biotech, formed a decade ago as a spin-out from Oxfor University by Alan Kingsman, a professor who is still chief executive, and his wife Susan, is looking for a partner to help it fund Phase III trials of TroVax. Such a partner is likely to be one of the world's big pharmaceutical companies. Back in October, Professor Kingsman promised to sign such a deal "within the next 12 months".

There is no guarantee he will succeed. And if he does, there is no guarantee the trials will be positive. Given these two big "ifs", and the fact OXB looses around £10m every year, its £150m stock market value looks to be too rich. Avoid.