The Week In Review: Don't trample all over Carpetright

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The Independent Online

Is it time to pull the rug from under Carpetright? Lord Harris of Peckham, chairman, chief executive and biggest shareholder, admits the year just ended was "difficult".

The slower housing market meant it took massive promotions to persuade anyone to re-carpet, which hit margins in the first half and ultimately, profits.

Full-year results this week showed pre-tax profits excluding exceptional items fell 9 per cent to £55.1m, reflecting the impact of that early hit to its profit margins. Like-for-like sales fell 2.8 per cent last year, despite picking up in the second half.

This column was cautious on Carpetright during last year's downturn - and rightly so. But this week's statement made better reading if you scratched below the surface. Cash flow remained strong, the dividend was in-creased and the group's push into Europe began to bear fruit.

With the housing market heating up once more, the outlook for Carpetright is picking up. The shares are expensive on around 20 times forward earnings. But buy on any weakness.

PERSIMMON

Britain's biggest homebuilder made a profit of £495m in 2005. This is forecast to rise to £576m this year. This column tipped the stock in August at 840p. While the shares have since risen to around 1,200p, given the low rating - just 8.7 times forward earnings - hold for more gains.

UBM

Former Express Newspapers owner United Business Media (UBM) is today focused on business to business publishing. With the stock trading at 15.5 times forward earnings, a clear discount to the wider media sector, it looks attractive. But UBM has exposure to the weak dollar and its directors have been cashing in shares. Hold.

ISOFT GROUP

Bid rumours have been behind a 76 per cent rise in iSoft shares since the start of the month. The latest suggest BT is considering buying the troubled IT services group. But according to the company's own broker, this is unlikely. Avoid.

BBA

Investors are pleased BBA's planned demerger of its Fiberweb division is on track - the unit produces non-woven fabrics, a totally unconnected business to the aviation services operation that makes up the rump of BBA. The big issue facing BBA shareholders is the future of its dividend, which could be cut following the demerger. Avoid.

DOBBIES GARDENS

Dobbies is forecast to make a profit of £5.3m by the end of the year. But this is of secondary importance - of most interest is what Sir Tom Hunter plans to do with his stake - most expect him to table a bid for the group soon at a price some way above the current level. Hold.

CHARTER

Brokers upgraded their earnings forecasts for Charter this week after the engineer's bullish AGM statement. Numis Securities was among those which upgraded its forecasts - it calculates that Charter is now trading at just 12 times forward earnings. Buy.

VECTURA

Vectura has three pieces of positive news. The biotech's VR004 treatment for erectile dysfunction has successfully undergone a phase II trial, as has its NVA237 drug for chronic obstructive pulmonary disease. Vectura has also unveiled a £42m fundraising that gives it enough cash to take it to profitability. Buy

DS SMITH

Cardboard box maker DS Smith has suffered a sharp drop in annual profits to £53m from £73m in the previous year. It blames high energy prices and excess capacity in the packaging industry that has forced it to shut mills. The good news is the shares are well supported by a 6 per cent dividend yield. Hold

BLOOMSBURY

The seventh and final Harry Potter book is not due until some time next year but Bloomsbury Publishing is keen to stress it has a strong list for 2006 including Joanna Trollope, Susanna Clarke and Ben Schott. Success depends on Bloomsbury backing books that sell. Given the group's track record this bet is worth making. Hold

SINCLAIR PHARMA

Sinclair Pharma has signed the biggest licensing deal in its two and a half year history, for its lead product, the Decapinol rinse for gingivitis, a gum complaint In total it has 13 products with regulatory approval in Europe and 10 in the US including treatments for a strong skin care portfolio. This strong portfolio is expected to drive rapid growth. Buy

The above recommendations are taken from the daily Investment Column.

PartyGaming hoping for a better hand in second year

PartyGaming celebrated its first anniversary as a listed company this week. The online poker group's time on the London market has certainly been eventful. In the aftermath of its much hyped flotation the stock hit a high of 176p. A few months afterwards the shares found themselves at a low of 71p following a sales warning from the company.

Forecasts suggest PartyGaming will deliver 50 per cent earnings growth this year and with its shares trading at just 13 times forward earnings they look very cheap.

However, there are good reasons for the company's lowly rating. First are concerns about the legality of online gaming in the US. Around 80 per cent of PartyGaming's poker players live on the other side of the Atlantic.

Second, the exodus from PartyGaming's boardroom since the float has not helped sentiment. Three directors have resigned from PartyGaming over the past 12 months with Richard Segal, the chief executive, the most recent departure. The fact that the group's founders have been selling their shares en masse has only made matters worse.

At current levels, PartyGaming's shares are fully priced.

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