The Investment Column: Durex-maker SSL is an impressive performer

Paragon; Plus Markets
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The Independent Online

Our view: Buy

Current price: 443p (+9.5p)

Given that HIV has been around for more than 20 years and metrosexual man is into his teens, it is perhaps fair to ask why SSL International, the maker of Durex condoms and Scholl footcare products, isn't much bigger.

But SSL has been transformed in the six years since chief executive Garry Watts joined the company; when he started, SSL was staggering along under £450m of debt and it looked like it could go bust. Yesterday's full-year numbers were greeted enthusiastically by the market and it is not difficult to see why. Full-year pre-tax profits rose 31 per cent to £46.9m, well ahead of market forecasts, while earnings per share surged to 17.1p, almost 12 per cent above forecasts. Debt has been reduced to a much more manageable £160m.

Durex was boosted by the Play range, aimed at enhancing sexual pleasure and performance while still providing protection against infections and birth control. Sales of the range, which includes condoms that can prevent premature ejaculation through a small dose of anaesthetic in the tip, have gone from zero to £27m in just two years.

In footcare, the firm has 45 products, ranging from shoes and inserts to gels and ointments that treat dry heels and warts. Although Scholl sales rose by a more pedestrian 6.2 per cent, the key to growth is to get men to take as much care of their feet as women do.

Not surprisingly SSL is thought to have attracted the attention of much larger rivals, including Johnson & Johnson and Procter & Gamble, and as a result a sizeable bid premium is in the price. The shares are not cheap, but the balance sheet is now in excellent shape, and with little exposure in Russia, Brazil and China there is plenty of scope for expanding its brands into new markets.

There is a good reason for the bid premium - SSL is in rude health, literally and figuratively, and would make a tasty morsel for a large number of bigger players. Consumer healthcare is an expanding market and SSL is well placed to reap the benefits. Buy.

Paragon

Our view: Hold

Current price: 538.5p (-33.5p)

Investors who have ignored the predictions of a housing crash and stuck with the buy-to-let mortgage lender Paragon have been well rewarded. In spite of suffering some setbacks in recent months, the shares are still trading at almost twice the price they were three years ago, and yesterday's interim results demonstrated that there is still little sign of a slowdown. New lending was up almost 45 per cent compared to the same time last year, and its chief executive Nigel Terrington insists that there are plenty of drivers to sustain momentum.

High levels of immigration, a growing student population and rising numbers of first-time buyers finding themselves priced out of the housing market are all helping to fuel demand for rental properties. Consequently, landlords have found it easy to up their rents, and are unfazed by the recent rises in interest rates.

There is no doubt that the British housing market now looks frothy. And while the economic conditions look too benign for any kind of imminent crash, growth must surely slow. Without such strong capital growth in their properties, investors may well start to look elsewhere for better returns.

As a company, Paragon is in good shape, and, trading on a forward price earnings ratio of less than 10 per cent, it is not expensive either. Existing shareholders may well want to hold on to squeeze the last bits of value out of the buy- to-let boom, but for new investors it may be too late to crash the party.

Plus Markets

Our view: Hold

Current price: 28.5p (+4p)

Plus Markets, formerly the old Ofex market, made an eye-catching move yesterday, finishing up 16 per cent. The company has been making noises about competing with the London Stock Exchange's AIM market, for small and fast growing companies, and yesterday admitted for trading shares in the AIM-listed Nature Technology Solutions. Directors have also been buying stock and the company hopes to be able to offer trading in all 1,600 AIM shares by the end of the year.

Like the investment banks' Project Turquoise, Plus hopes to benefit from Europe's Mifid directive, which, among other things, is supposed to stimulate competition between exchanges. Plus has good management in place and support from a number of brokers after raising £25m. But the group remains loss-making and it is early days yet.

Competitors to incumbent exchanges have a rotten record up until now, and, while Mifid may change things, there has always been a competitive environment in the UK. There is an argument for getting in early, but Plus shares have had a strong run and it may be better to watch developments before piling in.

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