When a constituent of a previously overlooked sector breaks into the FTSE 100 for the first time, it is usually a good time to sell. The promotion of Freeserve to blue-chip status in 2000 neatly coincided with the top of the dot-com boom; PartyGaming’s elevation in 2005 formed the pinnacle of the online poker frenzy; and, more recently, last year’s inclusion of an oil services stock in the index – first Wood Group, then Petrofac – was a sure-fire portent that crude had peaked.

Those are potentially worrying precedents for Amlin, which last month became the first Lloyd’s of London insurer to join the FTSE 100. That leap – it is valued at £1.7 billion – was the most visible sign of the wider outperformance of its sector, which, in benefiting from a wholesale flight of capital from insurance underwriting and an expected rise in premiums, has emerged as one of the few winners from the credit crunch in financial services.

But it’s hard to read too much into yesterday’s more-than-4 per cent slide in Amlin’s shares on its year-end trading update – not least because, having gained nearly 40 per cent since October, they were highly susceptible to profit-taking.

There were minor disappointments. The company is taking an £8 million charge against the closure of its trade credit insurance division, where it was a marginal player. Amlin’s disclosure of an average rate increase of 4 per cent on the business written so far in the January renewal season might also unnerve, given estimates from one of the world’s biggest insurance brokers last week that reinsurance rates are rising at about 8 per cent. However, reinsurance accounts for just under half of Amlin’s portfolio and, given that insurance rates usually follow suit, it is too soon for the company to feel the full benefit of hardening rates.

Further, the company is clearly confident that premiums are on an upward trajectory – for that reason, it is conserving some of its property and casualty capacity for later in 2009 to take advantage of higher prices. The flipside for investors is that the accompanying boost to earnings will take longer to feed through. For now, Amlin is enjoying a 31 per cent rise in gross written premiums – helped by the strength of the dollar, the currency in which it writes 60 per cent of its business – and has the strongest balance sheet in its sector (which means that it is free of the capital-raising concerns that constrain most of its peers).

Yet, at 357¼p, Amlin trades at a multiple of 1.45 times net tangible assets, on the forecasts of Numis Securities, against a sector average of 1.2 times. That premium is deserved, while its 4.6 per cent dividend yield is also attractive. However, on the view that there is little to send the shares any higher in the short-term, there will be better times to buy.

Dechra Pharma

If this week is firmly etched in the calendar of Dechra Pharmaceuticals, it is not just for the release of yesterday’s first-half trading statement. This weekend five years’ of work will culminate in the pet healthcare specialist launching its flagship product – Vetoryl, a treatment for Cushing’s disease in dogs – in America.

The remedy, which gained full approval from the US Food and Drug Administration last month, has the advantage of being the world’s only licensed drug for the treatment of the disease, which is caused by excess cortisol. More important, there are about 70 million dogs in the US, ten times more than the UK, giving Dechra confidence that it should be able to generate at least $20 million (£13.5 million) in annual American sales from Vetoryl within three years.

For now, yesterday’s update provided sufficient encouragement. Revenues were up 23 per cent, better than expected, a still impressive 9.5 per cent when the effects of last year’s £62 million acquisition of VetXX, a Danish rival, are stripped out. That deal also raised Dechra’s exposure to the euro and will enable it to take back in-house the overseas marketing of some of its biggest products, the margin on which it has previously given away to distributors.

The one concern is that like-for-like sales at National Veterinary Services, the low-margin wholesaler that was once Dechra’s biggest business, have started to slow in the past few months, from about 10 per cent in the first quarter to 5 per cent in the second.

Spending on pet health has proved resilient through downturns, so the hope must be that owners are cutting back on discretionary items such as accessories, rather than on the pharmaceuticals that account for 70 per cent of Dechra’s profits. At 410p, the shares trade at 17 times 2009 numbers, and yield 2.2 per cent. But with net debt of only £30 million and earnings forecast to grow at more than 20 per cent, hold on.

Marshalls

About a fifth of London-listed companies are expected to cut their dividend this year, but the question for shareholders in Marshalls is whether the Yorkshire building materials group will be one.

At yesterday’s 84p, the shares yield 11 per cent on the final payout alone, should it be held at last year’s level. The interim dividend (which accounts for one third of the full-year amount) was maintained, and Marshalls has not cut its payout since 1993. Yet, as last week’s update revealed, trading continues to deteriorate.

The company’s exposure to public sector construction – schools, hospitals and urban regeneration schemes – provides a degree of protection, but 2008 earnings are still expected to be down 40 per cent on 2007. Further, at £112 million, net debt is close to Marshall’s shrunken market cap. The dividend decision is not due until March. On the view that a cut is only a matter of time, the shares are best avoided for now.

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