Friends Provident seems to be doing all the wrong things at the wrong time. It is prioritising protection sales, just as the downturn in the housing market forces a slowdown in life and mortgage repayment insurance. It is concentrating on retirement provision as the group pensions market grows even more competitive through new entrants and as individual pension sales come under pressure from faltering consumer confidence and the end of the so-called A-Day effect of pensions liberalisation. And it has tried to offload non-core assets amid a credit crunch that has made it difficult for potential buyers to secure funding.

Friends has now put the sale of Pantheon, its top-drawer advisory network, on hold. It has also tempered expectations that buyers will step forward in the near term for Lombard, its tax-efficient investment adviser for the wealthy, and its 52 per cent stake in F&C Asset Management.

Yesterday it took the pain of a 20 per cent slide in first-half operating profits, from £264 million to £211 million. It is paring short-term growth in favour of a turnaround that should produce higher margins and fatter profits upon completion in 2010.

Shares in Friends have slid 53 per cent since last July, when it unveiled an ill-fated tie-up with Resolution, the closed life firm.

If there are grounds for optimism, they are threefold: Friends has an international business in which first-half sales rose by 57 per cent; there is the wild card of a new chief executive, Trevor Matthews, the clubbable Australian who used to run Standard Life in the UK; and there is the outside chance that, although the long-running efforts of JPMorgan Cazenove and Goldman Sachs have failed to find a buyer, a corporate predator will reemerge – albeit that it is unlikely to be JC Flowers, which from October is free to bid again.

However, at 87¼p, or six times current-year earnings, and yielding 4.6 per cent on a rebased dividend, there are cheaper FTSE 100 life insurers with fewer problems. Avoid.

Smith & Nephew

After May’s surprise disclosure by Smith & Nephew of “unethical” sales practices at the recently acquired Plus Orthopaedics, the stock market was sorely in need of reassurance from the FTSE 100 medical devices maker and in yesterday’s first-half figures that is exactly what it received.

First, the damage thus far from Plus – some $19 million (£9.8 million) of lost sales in the second quarter – is comfortably within the $100 million annual hit initially forecast by the company. Secondly, notwithstanding that setback, trading at the rest of S&N has surpassed expectations. Underlying sales were up 8 per cent on a constant currency basis to break through the $1 billion-a-quarter barrier for the first time, with earnings per share up a healthy 13 per cent.

All four of its divisions appear to be trading well. Endoscopy has returned to double-digit revenue growth (10 per cent) and sales of trauma products – the area in which Plus sits – are rising after a flat performance in the first quarter. Sales of reconstructive products, which include hips and knees, were up 8 per cent, despite a strong comparative against last year’s US launch of its Birmingham hip resurfacing implant.

But it is the progress of advanced wound therapies – specifically S&N’s launch of a vacuum-based system to treat hard-to-heal wounds such as diabetic ulcers and pressure sores – that offers the greatest near-term promise. S&N is one of only two players in this $1.6 billion niche.

At 597p, up 5 per cent, or 16 times next year’s earnings, S&N – a constituent of the Tempus Ten – has recovered some of its poise. But with the defensive traits that underlie its growth – not least demographics – still intact and unquestionably more attractive than those of large-cap drug makers, there is every reason to hold on for more.

Cobham

After this week’s strong numbers from Meggitt and Ultra Electronics, Cobham yesterday became the latest constituent of the aerospace and defence sector to demonstrate its resilience to Western economic turbulence. First-half revenues were up 28 per cent to £632 million and pretax profits ahead an above-forecast 24 per cent to £107 million.

Cobham has made five acquisitions worth £550 million so far this year but its organic growth has also been consistent, up 14 per cent in the half.

So strong was that performance that Cobham cautions that its growth cannot help but slow in the remaining six months. The signing of the 27-year Future Strategic Tanker Aircraft contract provided a boost to first-half numbers, as did orders for vehicle intercommunication systems for tanks and armoured cars from the US Army.

What clouds the longer-term outlook are concerns over a possible scrapping of civil aircraft orders and the prospect that a new administration in the White House will cut military spending.

On that front, Cobham draws only 10 per cent of earnings from civil aerospace. Meanwhile, the early indications from the US, which accounts for half of revenues, are that it will maintain its enormous defence budget. Procurement spending is expected to rise by 6 per cent next year, postponing any downturn until 2010 at least. Elsewhere, spending on intelligence and homeland security remains strong, as demonstrated by the £530 million bid for Detica from BAE Systems last month.

At 222½p, the shares have had a strong run ahead of the numbers – up 24 per cent in three weeks. Even so, a 2009 multiple of 14 times is reasonable in light of a solid balance sheet and double-digit earnings growth. Hold on.

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