IC's selection of 'best new issues'

We've picked some of the more promising candidates for investment in the comments that follow.

ANIMALCARE (ANCR)

Long-term shareholders in Genus can probably attest to the fact that there is money to be made in the agricultural sector. Animalcare is slightly different to Genus. It is a combination of two disparate but complementary businesses. There has also been some scope for the shares being undervalued because of confusion over the accounting numbers in the merged business.

The two component parts of 'new' Animalcare are Ritchey, an agricultural supplies business, and the veterinary pharmaceutical business of Animalcare. Ritchey's main product is bar-coded ear tags for cattle, now required by EU regulations to provide for traceability. It also supplies a range of other similar products to farmers, selling through major agricultural retailers and via direct mail order. Animalcare markets and sells a range of veterinary pharmaceuticals and animal identification microchips, mainly for cats and dogs. It has a number of new drugs in development.

At the time of the merger and listing, the two companies were of roughly equal size in terms of revenue but with Animalcare generating better profitability. Both generated significant operating cash flow, in excess of £2m combined in the year to June 2007.

Consensus forecasts currently suggest profits of £1.1m in the current financial year, slightly held back in the first half at Ritchey by the impact of the earlier foot and mouth disease and bluetongue outbreaks. Forecasts suggest this number could rise to around £1.9m in the year to June 2009 on revenue of £18m. The shares are currently capitalized at £11m, comfortably less than combined annual revenues, less than 10 times 2007 earnings, and less than six times combined historic operating cash flow.

That looks cheap for a company with some recovery built in and useful dividend payments in the pipeline. Buy.

LONDON & STAMFORD PROPERTY (LSP)

One of the best ways of exploiting the new issue market is backing entrepreneurs with a proven track record, even if the sector in which they operate seems unpromising.

This is the key to the investment case for L&S. It is the latest vehicle set up by Raymond Mould, Patrick Vaughan and Humphrey Price. They have a lengthy track record of investing in property and creating and realizing substantial value for shareholders. Their previous ventures include Arlington Securities and Pillar Properties.

Arlington – a business park developer - was set up in 1976, floated in 1986 and sold to British Aerospace in 1989. It generated a compound annual return for shareholders of 45 per cent during its period as a public company. Pillar likewise, founded in 1991, floated in 1994 and was bought by British Land in 2005, providing total returns for shareholders of a compound 22 per cent a year during the previous decade. The common factor in these two companies is that they were set up at times that were difficult for the property market and eventually sold at close to a property peak.

L&S has an initial portfolio valued at £37.5m net of financing and raised in the region of £238m net of expenses in the placing that brought it to the market. The current market capitalization just short of £300m suggests that the shares stand at a small premium to NAV. Pro-forma NAV is estimated to 97p a share, with the shares currently stranding at 104p. The company is currently around 85 per cent liquid.

This is a time when there are likely to be major opportunities to acquire commercial property at highly advantageous prices - once the current correction in rental yields and property values has run its course. Performance fees are payable once shareholder returns hit a hurdle rate of 10 per cent. These are subject to retention and clawbacks if performance slips subsequently.

This seems a pretty attractive package for those who want to get long term exposure to a vulture-type approach to a commercial property market currently in the throes of correcting as a result of previous overvaluation and the impact of the credit crunch. Buy.

DARWEN HOLDINGS (DHP)

Investing in companies that have yet to record a profit is far from being the safest way into new issues. In Darwen's case, however, that objection may fall away quickly. The company is an interesting way of participating in two solid long term trends.

The first is the growth in bus use in major metropolitan areas in the wake of the successes seen by TfL in London. Birmingham and Bristol are, for example, two areas currently looking at congestion charging and encouraging bus use.

The second trend is a move towards making buses more environmentally friendly by employing hybrid diesel electric technology. This uses braking to charge a battery, which can then be used to supplement power from a conventional internal combustion engine. There is considerable demand for this type of vehicle.

TfL is, for example, strongly encouraging the purchasing of low emission vehicles by London bus operators, using license renewal negotiations as an incentive, while Heathrow Terminal 5 is expected to purchase entirely emission-free vehicles. Other bus operators and local authorities are actively looking at the idea. Recent tax incentives for hybrid vehicles also suggest this is an idea whose time has come.

Darwen was formed from two companies: East Lancashire Coachbuilders, a conventional bus manufacturer – in the past the fourth largest in the UK - which produced 170 units last year; and Leyland Product Developments, which is developing hybrid bus technology in addition to a range of other technical innovations. There is also an interesting connection with Tanfield Group, an AIM-listed company which is chaired by Roy Stanley, Darwen's executive chairman. Tanfield is involved in zero emission vehicles and there is clear synergy between the two businesses. Mr Stanley has also recently bought Optare, another medium sized bus-builder, and there is speculation this could soon link up with Darwen.

Darwen has a strong order book for conventional buses in 2008 – output could be around 250 units - and published statistics indicate that bus operators are likely to be purchasing around 8,500 new buses between now and 2011, with a further 11,000 needed by the end of the following five year period. A small but sharply increasing proportion of these are likely to be of the hybrid drive, low emission type.

This looks an interesting growth story, albeit with the scale and scope of the numbers hard to quantify at this stage in the game. Darwen generated revenue of £2.1m from bus manufacturing alone in the 12 week period to end October 2007. But that is barely relevant to 2008 numbers.

Estimates from the company's broker suggest that revenue could be in the region of £38m in 2008 and profits around £2.4m, giving earnings per share of 3.6p and putting the shares on a multiple of less than 10 times. That looks too low. Buy.

ALL LEISURE GROUP (ALLG)

All Leisure is a cruise operator with an experienced management team that caters to the 'grey' market, with brands such as Swan Hellenic, Voyages of Discovery and Discover Egypt. The theory is that the group's customers are primarily 'empty nesters' with solid finances and housing wealth and therefore largely immune from the type of pressures that might afflict other holiday operators.

It currently operates two ships: MV Discovery and Minerva, which was formerly a Swan Hellenic ship previously acquired by Voyages of Discovery and which will be refurbished and reunited with the Swan Hellenic brand in May 2008.

The company is expected to add a third ship in due course, providing a boost to capacity and enabling to cater for what it believes is currently unsatisfied demand and a return to river cruising.

But the main attraction of the company is that up to 90 per cent of revenue is pre-sold before the cruises take place, producing strong cash flow and a highly visible revenue stream.

The numbers look attractive. At the time the company listed at the end of September at 180p, the shares were selling at around 10 times the company broker's earnings forecast for 2008 and on a prospective yield of around 4 per cent. As the price has barely moved overall since then, those numbers are little different today. Profits for the year to October 2007, announced in January, were fractionally ahead of market expectations at £7.05m. Pre-tax of £11.2m is expected for 2008.

Like its product offering, All Leisure may not be every investor's idea of fun. But if you believe in the concept, the shares look good value.