The Investment Column: Too early to take that tempting Persimmon profit

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The Independent Online

Our view: Hold

Share price: 1,200p (-9p)

Persimmon, Britain's biggest homebuilder, told the stock market yesterday that the country's housing market is in pretty good shape. Its comments chimed with those of rival Crest Nicholson last week. In a trading statement Persimmon showed that it had enjoyed a 7 per cent rise in like-for-like sales reservations for the year to date, and it told its shareholders to expect first half sales of more than £1.5bn compared with £1.1bn a last time.

Mike Farley, the group's chief executive, expects new house prices in the UK to rise by 3 to 4 per cent this year but said that his company should see a 5 per cent rise in the average selling price of its houses. Despite rising raw material prices, Persimmon's building costs are firmly under control, according to Mr Farley.

There was also good news from Persimmon from an operational standpoint. The integration of the group's acquisition of Westbury, unveiled at the end of last year, is now fully complete and delivering the hoped-for benefits. The tie-up aims to achieve cost savings of £40m and provide an opportunity for the combined company to focus in the next few yeas on the most lucrative developments planned by both sides.

There was also evidence that Persimmon is paying back the money it borrowed to buy Westbury faster than expected. Gearing now stands at 55 per cent compared with 80 per cent straight after the deal, highlighting the company's prodigious capacity to generate cash.

Persimmon made a profit of £495m in 2005. This is forecast to rise to £576m this year. With the housing market in good shape there is no real reason to doubt that it will hit this target, especially given the chronic shortage of housing in this country. For those investors nervous that a major housing downturn will one day come about, it is worth noting that Persimmon is one of the most diverse house builders both geographically and by type of home.

This column tipped the stock in August at 840p. With the shares at 1,200p, there will be a temptation for investors to take profits. But given its low rating - just 8.7 times forward earnings - they should hold on for more gains.


Our view: Hold

Share price: 618p (-11p)

The days when United Business Media (UBM) was involved in interesting businesses are gone. Not so long ago it owned a third of ITV and Channel 5, the Express newspaper and the pollster NOP. Today UBM is focused on the dry world of business to business (B2B) publishing.

In general terms, the B2B arena aims to connect buyers and sellers. UBM does so via an array of publications, websites and conferences. For example, it owns Information Week magazine in the US (for IT professionals),, the world's largest online telecoms publication, and organises the Hong Kong Jewellery & Watch Fair. What B2B has going for it is that unlike most other media markets it is enjoying growth.

So although UBM's new chief executive, David Levin, is unlikely to get invited to the glitzy media parties his predecessor, Lord Hollick, did he is in a good position to deliver year after year of earnings growth. City analysts expect profits at the group to rise from £142m in 2005 to £145m this year and to £156m in 2007.

Analysts also predict that it will return £300m of excess capital to shareholders over the next two years.

Yesterday, in a trading statement, UBM said it was on course to meet these expectations.

With the stock trading at 15.5 times forward earnings, a clear discount to the wider media sector, it looks attractive. But there are several negatives to the story. First, the company is exposed to the weak dollar as about half its sales come from the US. Second, its directors have been cashing in their shares recently. Nine directors and senior employees of the group sold more than 1 million shares between early March and the beginning of April, raising around £3.5m. All this makes UBM just a hold for now.

iSoft Group

Our view: Avoid

Share price: 88.5p (+2.5p)

Bid rumours have been behind a 76 per cent rise in iSoft shares since the start of the month. The latest suggest that BT is considering the purchase of the troubled IT services group. However, according to the company's own broker, such a scenario is unlikely to come to pass.

Bridgewell Securities told its clients yesterday that it struggles to see BT as a possible buyer of iSoft. The broker said that the rumour "goes against what we are hearing from industry sources". It pointed out that such a tie-up is not conducive to the structure of the National Programme for IT in the NHS where both iSoft and BT are heavily involved.

ISoft is one of the most heavily shorted stocks in the London market at present. This means that it can easily be "squeezed" higher by bogus takeover rumours. Given the dire financial state it is in at present - the company recently admitted to never really having made a profit - the stock should be avoided.