The Investment Column: Solid results and hopes for a bid make Crest a steady bet

Monstermob; Redstone
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The Independent Online

Our view: Hold

Share price: 516p (+0.75p)

Crest Nicholson kicked off the reporting season in the housebuilding sector yesterday with a solid set of interim figures which bode well for the wider industry. Although pre-tax profits fell from £48m to £39m they met City forecasts.

The drop mainly reflected a change in the way Crest booked its revenues last year, which boosted its figures for the first half of 2005. The company has suffered a slight retreat in margins, however, its new chief executive, Stephen Stone, hopes to remedy this through cost cuts. Providing the housing market remains stable, this should be achievable. House prices have been on the increase since the autumn, and Crest expects to see inflation of 2 to 4 per cent this year.

From an operational point, the group enjoyed an 18 per cent rise in volumes. Its land bank remains strong at more than 16,000 plots, which is enough supply to keep it in business for the next five years without adding a single plot.

Crest aims its homes at the low- to middle-income bracket, meaning that the people who buy them tend to do so for living in, and not for speculation.

In fact, about one-fifth of its business, by volume, is in "affordable" housing where the average selling price is £123,000.

The near-term performance of Crest shares depends on whether the takeover rumours surrounding the company come to anything. There is certainly a hefty bid premium in the group's current valuation, which stands at 11 times earnings compared with a sector average of nine.

The property tycoon Gerald Ronson controls 23 per cent of Crest, and last year pitched a bid between 345p and 430p. As it turns out, his offer came to nothing. However, there is a good chance that either Mr Ronson will return with a fresh one, or that Crest will be swallowed by one of its bigger rivals. That makes its shares worth holding on to.

Monstermob

Our view: Buy

Share price: 188p (+30p)

Monstermob, the mobile-phone content group, has been busy of late. Last week, the founder and chief executive, Martin Higginson, was ousted as a result of disagreements over strategy and a poor share price performance. Hans Snook, Monstermob's chairman, explained that after Mr Higginson's exit, Monstermob would look to fully exploit international opportunities and improve its profitability. He said the strategic shift should help drive its share price back to more than 300p.

The first step towards improving confidence in the stock came yesterday, and was successful. Monstermob said it has restructured the terms of its Chinese acquisitions, fixing the terms of future performance-related payments at the 300p-a-share level. That has removed significant uncertainty of potential equity dilution and infers confidence in the company's prospects, as its shares are trading significantly below this level.

Monstermob is well-positioned to take advantage of the spiralling growth in mobile content across the globe. It can reuse its products by rolling out content into emerging markets such as China, Russia and the Philippines. However, barriers to entry in the sector are very low, and mobile operators are increasingly looking to source content in a variety of different ways. Orange, for example, has established a free web-based portal that enables budding developers to create applications and content specifically for Orange's 64 million customers. With more content available from a variety of sources, prices should decline quite rapidly. Monstermob needs to prove it can generate recurring revenue from content, other than one-off purchases of ring tones and wallpaper, if it is to withstand such threats to its model in the long term. But in the short term, the shares look over-sold. Buy.

Redstone

Our view: Buy

Share price: 5.37p (unch)

Redstone is one of a plethora of small-fry UK telecoms companies vying for the attention of investors. Yesterday's strong full-year results, and the £17m acquisition of Symphony Telecom, will perhaps get it noticed. Redstone's management, specifically the chief executive, Martin Balaam, has turned a heavily loss-making also-ran in the fixed-line telecoms sector into a company that expects to play a significant role in the further consolidation of the industry. Mr Balaam took over the company just one year ago, but the recovery has been rapid. In fiscal 2006, Redstone sales increased 46 per cent to £72.5m and the company was profitable during the second half.

Symphony adds mobile to Redstone's product base, meaning it is better positioned to sell telecoms packages to its small-business customers. The deal also adds 8,000 customers to Redstone's base and generates cost savings by combining the two fixed-line businesses. Redstone aims to raise more than £18m through a placing of new shares. The investment firm SVG Capital has taken an 18.5 per cent stake in Redstone to help finance the deal.

Redstone's management has proven it can swiftly improve the fortunes of an ailing company. Investors can expect upside from the Symphony deal and should take SVG's backing as a positive sign. Buy.

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