The Questor columnEdited by Harry Wallop(Filed: 28/04/2006)...

The Questor column
Edited by Harry Wallop(Filed: 28/04/2006)




Smith & Nephew will be prone to aches and pains even when new joints kick in

Smith & Nephew

Share price 462p -48p
Questor says Sell

In the past few months Britain's biggest maker of replacement hips and knees, Smith & Nephew, has split itself into two divisions: reconstruction, which focuses on replacement joints, and trauma, which makes heavy-duty pins to keep bones together after accidents.

The exercise has absorbed management's attention and contributed to a dampening of the company's historically strong growth. The company has also struggled with the National Health Service tightening its budget, which has hit sales of its wound care products.



Yesterday the company said conditions would be tougher than expected this year as it unveiled a 2pc rise in revenue to $643m (£357m) in the first quarter with profit up 2pc to $126m.

Despite the lacklustre figures, the company insists the future looks bright. A string of ground-breaking products such as its "journey knee", thought by many doctors to be the most natural replace-ment joint avail-able, are coming on to the market.

The funda-mentals of Smith & Nephew's business are undeniably sound. People are getting older and in greater need of replacement joints and medical care.

However, these attractions are already priced into its shares, which trade on 20 times 2006 earnings, and the company will inevitably come under further pricing pressure from the cash strapped NHS. Avoid.

Smith & Nephew | Hardman Resources | Cattles



Hardman Resources

Share price 98.25p -1.75
Questor says Buy

The news in February that oil has begun to flow in West Africa came as some reassurance to investors in frontier exploration venture Hardman Resources.

The Australian company, joint listed on Aim, has been digging holes in hard-to-find places since 1987 and is now shaking a tin at London investors for $100m (£56m), via a placing of 65m new shares at 98p a share, to continue the search. The money will be used to finance exploration in Uganda, Surinam and even further afield like the Falkland Islands.

But it is the Mauritanian deposits that offer the most immediate and meaty returns. Oil from the Chinguetti field, where Hardman has a 22pc stake, is now flowing at 65,000 barrels a day but it arrived too late to provide revenues in the first quarter. Results this week for the three months showed a loss of A$46m (£19m).

Current flow from Chinguetti is slightly below forecast but an inflated oil price should more than compensate.

Fortune has favoured the brave souls who got on board at 25p in 2002. Though the shares are being diluted, there should be further upside considering the company is revenue-generating. However, this is one for courageous investors only.