Stick with Liberty in tough times

For investors adopting the brace position for a crash in UK consumer confidence, it has not required much of a logical leap to sell shares in Liberty International, 80 per cent of whose property portfolio is shopping centres. The group, chaired by the eccentric septuagenarian Donny Gordon, owns six of the country's 15 biggest centres, including Braehead in Glasgow, Lakeside in Essex, and Gateshead's MetroCentre.

If consumer spending dries up and retailers start to go bust, Liberty might be in trouble. There are risks even if consumer armageddon is avoided, since a minor portion of rents are related to till takings and rent increases may have to be put on hold. But 80 per cent of its tenants have more than 10 years to run on their leases, so this is not a group whose earnings could collapse overnight. Consumer meltdown is still only the most bearish of potential economic scenarios, and it seems premature to be giving up on Liberty.

After the fall in its share price in recent days, Liberty yesterday rushed out the results of its annual portfolio revaluation. This showed that, excluding the uplift from capital expenditure on some properties, it has risen in value by £177.5m, 5.2 per cent, over the course of 2002, mainly thanks to strong rental growth. Only the mixed office and retail interests held inside the M25 – less than 20 per cent of the portfolio – have fallen in value.

The risks with this stock are as much about potential corporate moves as they are about the economy. Mr Gordon holds a stake in Great Portland that many think will eventually tempt him to make a bid, and he is still heard musing about a merger with British Land. Any moves would dilute Liberty's exposure to shopping centres, one of the more defensive areas of the property sector, and could jeopardise the substantial premium to the sector at which Liberty's shares trade. That said, Mr Gordon is keen to maintain the company's new-found FTSE 100 status, and is likely to proceed with caution.

This column advised holding the shares last April and, at 532p with a 4.5 per cent yield, they remain attractive.

A bid is priced in, so bank profits in First Active

First Active has enjoyed the luck of the Irish. The Dublin-based bank hived off the majority of its UK-based telephone and internet financial services arm when new technology companies were attracting generous prices three years ago. Then it turned its full attention to the Irish mortgages market in time to cash in on 20 per cent annual house price inflation.

Yesterday the bank said profits leapt 26 per cent to €66.1m (£40m) in 2002, even before one-off gains. Its shares, which are up two-thirds since we tipped them last February, rose 10.5p to 371.5p.

First Active acknowledges a slowdown is inevitable because the Irish mortgage market, like that of the UK, looks unsustainable. But investors are still looking forward to the return of €160m (£106m) to those on its share register by 25 March. The company is distributing the £40m it netted from the sale of its remaining UK stake in Britannic Assurance and other surplus cash.

It may be tempting to hang on even after March, since the former building society loses protection from hostile takeovers this September. But the prospect of a bid looks well and truly priced into First Active's shares. On a forward price- earnings ratio of 15, these are nearly twice as expensive as rivals such as Anglo Irish. Take profits.

Alizyme's a risky investment but worth a gamble

There are two possible interpretations of the news yesterday that Alizyme, one of the UK's cash-strapped biotech companies, has raised £15.1m in an underwritten placing and open offer. The first is that the company's new drug for colon ulcers has turned out to be unattractive to any giant pharmaceuticals group, to whom Alizyme had hoped to licence the product by the end of last year. A new round of funding from shareholders was the only way to keep the group on the road. The second, more positive, view is that investors agreed to stump up the cash because while Alizyme's financial position was so precarious, Big Pharma thought it could get away with offering a derisory sum for the drug.

This second view is the more plausible. The placing is backed mainly by new institutions, not just existing shareholders facing wipe-out. And 28p, at which shareholders are being offered a new share for every two they hold, is no great discount to the market price, which rose 2.25p to 31p.

Alizyme is a risky investment and it is difficult to guage the potential value of the ulcer drug, and its new treatments for obesity, irritable bowel syndrome and the side effects of cancer drugs. None will earn revenues until 2006 at the earliest, and some could still fail.

Nonetheless, shareholders should subscribe to the offer. It is a pretty good bet that at least one of three triggers will send the shares higher this year: a licensing deal for the lead drug, and clinical trial results on two others.