The Week In Review: No accounting for taste when it comes to this growth stock

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The FTSE 100 technology stock Sage, which specialises in accounting software for small- and medium-sized companies, delivered another strong set of numbers.

The FTSE 100 technology stock Sage, which specialises in accounting software for small- and medium-sized companies, delivered another strong set of numbers. However, there is no accounting for the market's taste when it comes to what counts as a growth stock.

In a year-end trading update, Sage showed it has capitalised on a strong first half with forecast-beating second-half profits. All told, it produced full-year group revenues up 29 per cent to £688m, organic revenue growth of 6 per cent and a 20 per cent increase in pre-tax profits to £181m. Earnings per share grew 21 per cent to 9.9p.

But its shares barely moved, closing up a measly 0.4 per cent at 172p, trading where they were a year ago and implying a lack of progress.

Its shares might already be fully valued but, compared with its software peers, it trades on a big discount to Microsoft, SAP and Intuit. One reason is that these larger rivals could suddenly turn on Sage and try to steal its business, but to do so they would have to embark on a price war.

A better explanation is that investors are waiting to see more evidence of economic recovery from the US, which accounts for 40 per cent of profits. However, with a good geographic spread to its business, the shares look cheap. Buy.


While Britain braces itself for a possible crash in the property market, housebuilders continue to report record results. This week, it was the turn of Bellway, a builder based in the North-east, which produces lower- to mid-range homes. Turnover broke through the £1bn mark for the first time for the year ended July. Pre-tax profit was 21 per cent higher, at £205.5m, while the dividend was jacked up 25 per cent. But there is every reason to be cautious about the housing market - especially the buy-to-let sector. Hold.


N Brown, the Manchester-based home-shopping company, claimed it was planning to capitalise on the "emotional bond all women have with shoes" by launching a website selling ladies' footwear. But after a string of profits warnings, this company still lacks credibility. Launching glamorous-sounding online retail pro- positions is not going to transform a business that still needs a lot of fixing at its centre. It remains to be seen whether even its core business can maintain any momentum in the face of a relentlessly competitive high street. Sell.


Tullow Oil, the oil and gas explorer/producer, announced its sixth discovery of the year, in a field in which it has a small stake - in deep water between the republics of Congo and Angola. Earlier this year, there were discoveries in Bangladesh, the North Sea, Gabon and Congo. Tullow is active in 16 countries, in Africa and south Asia, and the North Sea. It holds 90 exploration and production licences. Of these, most City interest at the moment is focused on high-risk wells in Mauritania and Uganda. With such a spread of activities, Tullow is well positioned. Buy.


Greggs the baker found the going sticky last summer when the mercury soared and people stopped scoffing so many sausage rolls. Damp weather equals rising dough for this company, so there was little surprise when it said like-for-like sales had increased by 5.4 per cent in the past 11 weeks. The City is happy enough with its plan to venture away from the group's northern heartland. These are early days, but so far Greggs' plans to increase its estate to 1,700 from 1,200 by the end of the decade are progressing well. Buy.


Bradford & Bingley, Britain's biggest buy-to-let lender, is in the middle of a dramatic shake-up: it is selling non-core assets to focus on niche mortgage lending and the sale of simple financial products. The City is also concerned that the bank's capital generation is not strong enough to support growth going forward. Some investors are still hoping that B&B will be taken over, but it is hard to see why other players would want to take on a specialist mortgage lender just as the buy-to-let market is turning down. This is one to avoid.


Findel has done a fine job of transforming itself from a company selling Christmas cards into one selling, well, just about everything. These days, the former Fine Art Developments group has a veritable library of catalogues touting goodies such as garden furniture, soft furnishings and DVD players. It also has a booming education division which supplies schools with the likes of Bunsen burners and hockey nets. Group sales increased 14 per cent in its first half. Buy.


There is not much fizz in the global drinks market, so Allied Domecq has pursued a strategy of raising prices for its core drinks brands, including Malibu rum, Courvoisier cognac and Beefeater gin. This strategy of encouraging consumers to pay up for more upmarket brands has been most successful in the US, where cocktail drinking is becoming more popular. In parts of Europe, the reverse has been the case. The shares are fully valued.


Cairn Energy has been one of the most spectacular stories of the year, after the oil exploration and production group made a huge discovery in Rajasthan. This week, the story moved on: the government of India has given the go-ahead to move from exploration to development on a large part of the acreage for which it holds licences. The potential is for a billion barrels of recoverable oil. Not all of that is in the price. Hold.


Freeport, the shopping malls group, is getting out of the UK to concentrate on developments in continental Europe, probably the right thing to do as consumer spending slows and the heat goes out of property sector investing. Its European adventure has so far been plagued with problems - poor trading in Sweden and a planning glitch in France - but its new, biggest centre, in Portugal, opened strongly. Speculative buy.

'Miracle' home products boost profits

When Reckitt Benckiser, the consumer goods giant, recently reiterated it was on track to deliver its forecasted earnings growth in the face of dismal trading reports from rivals Unilever and Colgate. But the company's self-congratulatory stance was proved justified earlier this week.

The company announced a 22 per cent jump in third-quarter profits and said it expected full-year revenue growth of 9 per cent, up from its previous 7 per cent target. This news came despite unhelpful market conditions of rising raw material costs and a slump in consumer spending across many of its markets. These are hurting its competitors, which are having to throw additional funds behind their brands at the expense of profits.

But Reckitt has overcome these problems thanks to good product innovation and tight control over costs. Its 15 core "power" brands, such as Airwick, Harpic, Calgon and Dettol, are growing at 13 per cent, which is outstripping the rest of the company's products. The astonishing Vanish Oxi fabric cleaner, for example, a "miracle" stain remover, has become a must-have item in many a kitchen cupboard. It was the main driver behind a 9 per cent growth in its fabric care revenues, and the company has now developed a carpet version. It expects to have a 20 per cent operating margin across the group in 2006.

Readers who followed this column's advice in November to buy the shares at 1,270p are sitting on a nice uplift. But despite promises of further strong earnings growth, the shares are now trading at about 17 times earnings. Reckitt is starting to look a little too fully valued to represent a great buying opportunity. Still, it has demonstrated an impressive ability to improve its products and its market share. The shares should remain a core holding.

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