The Investment Column: Record breaking Persimmon is a housebuilder worth moving in on

Buy into Intec on the back of the mobile phone ringtone revolution - Engineer Bodycote looks a hot property
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The Independent Online

The housing market crash still hasn't happened.

Persimmon, the UK's number two housebuilder, showed yesterday that it was possible to grow profits and maintain sales, even in the tough first half of 2005. Since the start of July, the company has seen sales reservations jump 8 per cent ahead of last year. Even against the weak July and August seen in 2004, this is impressive stuff.

And consider this. In the first half, the company recorded turnover of £1.1bn, up £100m on 2004. And for the second half, Persimmon has already booked forward sales worth £980m. So the full-year results are in the bag, with analysts expecting the company to report profits of £500m for 2005, a record for Persimmon.

A number of surveys have detected a pick-up in housing activity in July and August, traditionally quiet times for the market. But not all of the industry is having it so good, and several of Persimmon's rivals have been nowhere near as upbeat on their summer performance. Persimmon has managed to help itself.

It has done this by opening more sites (up 11 per cent), driving up the total number of sales. It has had to offer greater incentives to buyers, things like part-exchange and free furniture, but it has offset this by its commendable control of costs elsewhere. The company's size - it builds more homes in the UK than anyone bar Barratt - means it is able to offer suppliers continuity of business in return for good deals.

Persimmon has also benefited from its geographical spread - its sites range from Aberdeen to Cornwall - and its prices range from £65,000 to over £1m. Crucially, the company does not have a big position in inner-city apartments - risky property investor territory. According to John White, the chief executive, it has been a question of having the right product, in the right place and in sufficient volumes.

Four years ago, Persimmon grew its scale through the £600m acquisition of Beazer and it once again has debt down to a paltry level. It could easily pull off another sizeable deal.

Persimmon shares trade on 7 times earnings. That is not even above the average in an undervalued sector, and is simply too mean for such a well-managed business. Buy.

Buy into Intec on the back of the mobile phone ringtone revolution

As consumers increasingly buy ringtones, video clips and games for their mobile phones, spare a thought for the telecoms companies. It has become fiendishly difficult to develop the complicated software necessary to interact with the content companies and to add the cost of these purchases to customers' bills.

While many operators do still develop such software systems in-house, many are looking for customised or off-the-shelf systems from the likes of Intec Telecom Systems. Intec has a strong, established business supplying telecoms operators with software to calculate the bills they send each other (for calls from one network to another). And last year it bought Singl.eView, which helps manage that increasingly complicated customer billing.

The acquisition is generating significant new business, since telecoms companies are keen to buy bundles of software products rather than having to shop with several different software vendors. Results yesterday were marginally below City forecasts for a good reason: revenue from the sale of a bundle of software comes in over several years, where old-style Intec sales used to get all the cash up front. It proved the acquisition is working, and that future revenues ought to be more predictable. There was also good news on costs, being kept low by employing new programmers in Bangalore, rather than in the West. Intec shares, at 61.75p, are a buy.

Engineer Bodycote looks a hot property

The stock market's engineering companies are often referred to as "metal bashers" - but there is a little bit more than bashing involved. Bodycote International does some of that little bit more, namely the heat treatment which makes metals strong or flexible or durable enough for the task they are being bashed into shape for.

Manfacturers of components for the oil and gas, the power generation and the aerospace and car industries have tended to do this heat treatment work themselves, but Bodycote believes that most of the smaller players would find it cheaper to outsource this work. So far only 15-20 per cent of all such work is outsourced, so there is a big opportunity for Bodycote.

The company has restructered since the global economy turned down after the Millennium. Last year, a £62m rights issue put some mettle back in the balance sheet and the company has been on the acquisition trail ever since. Ten small acquisitions have been done in the past six months, and in a fragmented industry there is scope for more. The highlight of yesterday's interim results, though, was the organic growth, with new orders from most industries. Only the car industry (the biggest for which Bodycote works) is a worry in the short-term, although it appears to have stabilised and, in the medium term, there will be growth in demand for cars in emerging economies.

Bodycote shares, up 5.75p to 206, putting them on 15 times earnings, are just above the sector average.

Hold.

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