The Week In Review: Reckitt Benckiser still cleans up

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The Independent Online

The household products group Reckitt Benckiser is one of the FTSE 100's most reliable performers. The latest first-quarter figures were another case in point, with net income up 15 per cent to £82m on net revenues up 6 per cent to £874m.

The household products group Reckitt Benckiser is one of the FTSE 100's most reliable performers. The latest first-quarter figures were another case in point, with net income up 15 per cent to £82m on net revenues up 6 per cent to £874m.

After banking the synergies of 1999's merger with Benckiser, the Reckitt machine has moved relentlessly on with two fancily named cost-saving programmes, Squeeze and Xtrim. These, with higher-margin new products such as Vanish Oxy Action and Calgon Aquapro, have helped push operating margins up 0.8 per cent to 13.4 per cent in the past 12 months. The performance in the first three months bodes well for the rest of 2003, with the company guiding the market to expect net revenue growth of 4 to 6 per cent, with net income growth in the low double digits.

The possible downside is that Reckitt shares have enjoyed the benefit of the stock market's favourable view of more defensive stocks. Now the pendulum may swing the other way as investors seek stocks with recovery potential. There may be better times to buy.

Holidaybreak

Holidaybreak, the camping specialist which also offers hotel breaks and adventure holidays, has been suffering from the cloudy skies that have afflicted the whole travel sector.

War-inspired qualms have put families off booking their summer holiday early, which means the company has achieved just 80 per cent of its targeted year-end sales for the division. Its adventure arm has suffered because the company has had to cancel holidays to certain Sars- afflicted countries.

Analysts like the group's management team as well as its double-digit earnings track record. It is well positioned to meet the increasing demand for tailor-made holidays, which should stand it in good long-term stead, even if the immediate outlook is less hot. One to tuck away.

Sage

Sage, the accounting software group, has a reputation for coming up with the goods, which explains why it is the only technology stock left in the FTSE 100 index. Half year figures this week were in line with expectations. Market conditions generally are not getting any better, although the company has seen a "glimmer of light" in the US. Competitive pressures, from the likes of Microsoft, remain. Currency is also an issue, because about half the company's revenues come from the US, with about 23 per cent coming from mainland Europe. Hold.

Chrysalis

Chrysalis is an interesting media mini-conglomerate on the brink of major change. It has interests in TV, music publishing, radio and books, but the group could end up as a radio specialist, focusing on stations like Heart and Galaxy. The company has said that it is in talks with a management buy-in team for the TV assets, which make programmes such as Midsomer Murders and Ultimate Force. That should fetch about £40m. The books assets are also on the block, but their problem of publishing too many unprofitable books will delay divestment. Worth holding.

Nord Anglia

One of Nord Anglia's main businesses is running private day care nurseries, which is a huge growth market as increasing numbers of new mothers return to work. The company also runs independent schools such as some of the British International Schools, which are dotted around the globe. The potential problem is supplying outsourcing contracts to schools which have more pressing concerns, like finding new teachers. To boost growth the company is looking at other areas like prison education. The current p/e of 13 seems about right.

Thus

The Scottish telecoms company Thus has a rather scary share price chart, but it is delivering on its promises as it inches closer to profitability. Thus reckons it will be cash flow positive, after interest and capital investment, by March of next year and predicts it will be making profits after tax some 12 to 18 months after that. The finances look healthy, as the group has drawn down an estimated £40m of a £90m facility and believes it will need another £10m. A speculative buy.

Taylor Woodrow

Like all UK housebuilders, the question dogging Taylor Woodrow remains, "is the housing market about to crash?" The question irritates Taylor Woodrow, as it has not experienced plunging sales or prices. The company also points out that it has relatively little exposure to the London market, which has been softening. Demand is stable in the regions, it says. The group admits that the UK market is returning to more normal levels after a boom year in 2002, but says average selling prices are still ahead of last year. But this does not look the time to buy. Avoid.

Signet

Signet lost a little of its sparkle after a first-quarter sales performance which was very much a tale of two halves. The US business, which accounts for 70 per cent of the group, was slightly disappointing, with like-for-like sales in the three months to 3 May up just 1.1 per cent. It was the UK business which shone like a polished diamond, with underlying sales up a till-ringing 5.4 per cent. The worry is that Signet says there has been evidence of weaker consumer demand in the US. The shares are not expensive but they have underperformed the sector in the past year and the reliance on the somewhat wobbly US market means that these particular diamonds may not be investors' best friend.

MMT Computing

MMT Computing, a software and services firm, is suffering from the same sickness dogging the rest of the IT sector. Customers are cutting back on spending on IT while buying cycles are lengthening. The good news is the firm's results are more weighted to the second half of the year and MMT estimates it already has about 60 per cent of those revenues in the bag. The bad news is the IT sector is not yet showing any signs of a major revival. Sell.

The above is a selection of recommendations from this week's daily investment columns

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