The Investment Column: Travis Perkins has the foundations for growth

PZ Cussons; D1 Oils
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The Independent Online

Our view: Buy

Share price: 1,605p (+80p)

City analysts were expecting Travis Perkins' interim results to show a 10 per cent drop in first half profits. Hence, when the building materials group unveiled a slight rise in earnings yesterday investors responded by sending its shares soaring 5 per cent.

Travis, which trades through a network of 1,002 builders' merchants and has 179 Wickes DIY superstores, was hit by slowdowns in consumer spending and the housing market in 2005. Since then, it has been on a drive to reduce costs. Yesterday, its management confirmed they are on track to achieve £55m of cost savings for 2006 - it has shed nearly 1,000 jobs in the past year.

Unveiling a 0.4 per cent rise in interim profits to £110m, they also stressed that a gradual recovery in sales is on the cards for the second half of the group's financial year. The company's Wickes chain put in a particularly good performance. Like-for-like sales at the unit declined by 4.4 per cent over the past four weeks. This is a vast improvement on the 9.4 per cent drop it suffered in the first 16 weeks of 2006.

With Travis reaching the milestone of 1,000 outlets, there have been some concerns that the group has reached saturation point in the UK, and that it might need to expand into Europe. However, Geoff Cooper, the chief executive, dismissed suggestions that a move overseas is on the agenda. He sees plenty more growth in the UK and said the group had already identified another 440 potential sites on these shores for both Wickes and its core builders' merchant businesses.

Although the DIY market remains subdued for now, economic indicators such as mortgage approvals and house price inflation suggest that growth is likely to accelerate as we head towards 2007. Meanwhile, the trend in the broader construction market also looks positive with the UK expected to see rising numbers of hospitals, homes and schools being built over the next two years. This leaves plenty to scope for earnings upgrades at Travis and leaves its valuation, just 12 times forward earnings, looking undemanding. Buy.

PZ Cussons

Our view: Buy

Share price: 1,458p (+73p)

PZ Cussons is barely a soap sud in an empty bathtub compared with giants of the detergent world such as Unilever. It is a family-run, family-controlled company that does most of its business in Nigeria and has not always appreciated that it operates in the 21st century and not the 19th, when it was founded in Sierra Leone.

But there's no point getting in a lather about PZ's idiosyncrasies. For one thing the group, which owns Imperial Leather and an eclectic mix of other household goodies including Greek olive oil and powdered milk, could teach Unilever a thing or two about growing sales and profits.

Yesterday the group gave its first ever City presentation on the occasion of its preliminary results, which showed a 15 per cent jump in pre-tax profits to £61.2m. To improve liquidity in its tightly held stock - the founding families own 57 per cent - it has proposed a ten-for-one share split.

The figures showed its Nigerian business, which supplies the street markets of Lagos and beyond with all sorts from toiletries to fridges and freezers, is booming thanks to the surplus cash splashing around in the country due to the high oil price and last year's $57bn debt relief. Higher sales have helped to offset the pressure on margins from the rising cost of raw materials.

PZ is using its own surplus cash to expand its businesses around the world, notably in the UK where it also owns the Charles Worthington hair brands. With such a large presence in booming developing countries to offset its more sluggish, mature markets this is a company that will keep on growing. Buy.

D1 Oils

Our view: Only for the brave

Share price: 244p (-1.25p)

D1 Oils provided one of its regular quarterly updates to the market yesterday. On the whole it made pleasant reading for investors. The company is focused on planting Jatropha trees, the seeds of which can produce oil. It is also building a series of refineries which will turn this oil into bio-diesel.

Yesterday, D1said it had a total 68,210 hectares of Jatropha planted, although the bulk of this is not directly owned by the company (most is contracted out to farmers or comes in the form of supply agreements with existing producers). The company also indicated that the first four of its Teesside refineries will be running at full capacity later this year. It aims to eventually have eight on the site.

Demand for the bio-diesel D1 hopes to produce is rising because of the sky-high oil price and its environmentally friendly qualities. However, the group is still in its infancy. It has no target date for profitability and will most probably have to come back to the market for more cash before then. This makes the company suitable only for the bravest of investors.

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