The Investment Column: The apocalyptic predictions continue but Crest Nicholson is worth holding

Marketing company Media Square looks set for a rosy future and is a buy - Canaccord listing on AIM gets off to a stormy start
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Apocalyptic predictions that the housing market will burst continue to be put forward. So you might conclude that housebuilders, especially those with a big exposure to the frothy South of England, such as Crest Nicholson, are not a good investment right now.

Apocalyptic predictions that the housing market will burst continue to be put forward. So you might conclude that housebuilders, especially those with a big exposure to the frothy South of England, such as Crest Nicholson, are not a good investment right now.

But consider the news this week that two members of the Bank of England's Monetary Policy Committee voted for rate cuts at its last meeting. So the interest rate cycle has well and truly turned.

In the case of Crest Nicholson, it aims its products at the low to middle-income bracket, with its sites in the economically vibrant Midlands and further south. These customers need homes to live in and are not moving to speculate on the housing market.

The company, which announced half-year results yesterday, has changed its target market from its previous orientation of middle-market "executive homes". It now sells homes from its open market division at an average price of £250,000, which is not a lot of money in the South.

A fifth of Crest Nicholson's business, by volume, is in "affordable" housing and here the average selling price is £123,000. There is a focus on urban regeneration, with 67 per cent of sales being apartments. This includes doing up an inner-city "sink" estate in Birmingham.

The company announced pre-tax profits, before exceptionals, of £38m, up 6 per cent. It had to take a £2.1m exceptional charge to cover its defence against an approach from Gerald Ronson's Heron Corporation. A formal bid was never tabled by Heron, which complained Crest Nicholson had not provided enough information. Heron indicated its bid would be pitched between 345p and 430p a share. It still has the 23 per cent stake in Crest Nicholson it built for its aborted bid, so we can assume it will be back. Under the rules, it must wait until November before a hostile bid can be made. Crest Nicholson says that housing market conditions are "challenging" but its chief executive, John Callcutt, points out that it has actually seen a pick-up in activity in the South-east in the past three months.

The shares, at 391.5p, are underpinned by bid interest, making the stock well worth holding.

Marketing company Media Square looks set for a rosy future and is a buy

Media Square is a smallish but ambitious company in the marketing field. It has grown rapidly through acquisition, pulling off 12 deals in the past two years.

It has two divisions: marketing communications, which provides PR and services on the creative side of "below the line" advertising - direct mail, e-mail and marketing activity on mobile phones.

The bigger division, retail marketing services, provides in-store "point of sale" promotional material and services for home shopping businesses.

Jeremy Middleton, the chief executive, says the company has paused to digest its acquisitions and yesterday's results show that all is well. Revenues were up 270 per cent to £18.4m, while underlying operating profit improved by 271 per cent to £1.61m.

Media Square is the market leader on the retail side and hopes to taking market share in marketing communications. Its shares, at 24.75p , are a buy.

Canaccord listing on AIM gets off to a stormy start

The news that Canaccord Capital had quit as broker to the British biotech company Phytopharm following an attack by animal rights activists could not have come at a worse time for the Canadian financial services group.

It came just a day after its debut on London's Alternative Investment Market. Already listed on the Toronto Stock Exchange with a market value of C$461m (£205m), Canaccord became one of AIM's largest companies.

But Canaccord said yesterday that loss of Phytopharm as a client would have no impact whatsoever on its business.

It resigned its broking role after a company director's car was firebombed by animal rights activists.

The Animal Liberation Front said it targeted the director because of links between Phytopharm and Huntingdon Life Sciences.

However, the British biotech company denied it had any links with Huntingdon, pointing out that it had terminated its partnership with Yamanouchi Pharmaceuticals, the Japanese company which had links with Huntingdon, several months ago. Canaccord said it was sad to lose a client in this way but added that it had to put the safety of its staff first.

The incident should prove no more than a blip on Canaccord's radar screen and indeed, the shares barely budged yesterday.

The company has gone from strength to strength and reported a stellar set of annual results in May. Revenues for the year to 31 March rose to C$432.8m, taking profits to a record C$48.6m.

It has plenty of cash, underpinning management's ambition to add a US leg to the group's Canadian and UK businesses.

The group does investment banking and trading, and also caters for private clients.

At 432.5p, Canaccord trades at a discount to its UK rivals Numis and Evolution. Its British business is growing rapidly and this year has started strongly, with decent fund raises in Britain (First Calgary, Oilexco) as well as in North America. The shares are a buy.

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