The Investment Column: Wilson Bowden shares can build on interest from HBOS

Shore Capital; Paddy Power
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The Independent Online

Our view: Hold

Share price: 1,698p (-52p)

Speculation about the future of Wilson Bowden overshadowed yesterday's interim results from the UK's fifth-biggest housebuilder. Reports at the start of the week suggested HBOS is running the slide rule over the group and sent it shares to an all-time high. Yesterday, they fell 3 per cent as Ian Robertson, the chief executive, refused to comment on the rumours.

The future ownership of Wilson Bowden has been in doubt since it emerged in July that the investment bank NM Rothschild had been appointed to review the 33 per cent stake in the group held by David Wilson, 64, who founded the company and is its chairman. Should anyone buy the whole stake, they will be forced to make an offer for the whole company.

HBOS is no stranger to making investments in the housebuilding sector and over the past six years has built up equity holdings in a number of private players including Countryside Properties and Linden. Earlier this week, the bank celebrated securing a £1.1bn deal to buy the retirement homes builder, McCarthy & Stone, after rivals withdrew from the contest.

To win Wilson Bowden it would probably have to pay more than £2bn. It is also likely to face stiff competition from housebuilding giants such as Persimmon and Barratt - which would love to get their hands on Wilson Bowden's extensive land bank - as well as private equity firms, which would be attracted to the company by its strong cashflows.

As for Wilson Bowden's interims, they met City expectations despite showing a 14 per cent drop in pre-tax profits to £85m. Higher building costs and a fall in the number of completions at the Wilson Homes division was to blame. However, Mr Robertson expects a marked pick-up in profits in the second half, allowing it to meet its forecasts for the full year.

Commenting on the state of the housing market, the Wilson Bowden boss said demand remained strong despite the surprise rise in interest rates by the Bank of England last month. The group's shares now trade at a slight premium to the wider sector. Given the quality of its land bank and the possibility of a bid, this is justified.

Shore Capital

Our view: Buy

Share price: 63.5p (+4.5p)

Shore Capital, the boutique investment bank, has had great success with its Puma Brandenburg German residential property fund. It raised £185m to buy homes in the German capital to try to take advantage of a rental culture and plentiful government-built housing which had left apartments costing about one-tenth of the price of London per square foot. By the end of next year, the fund is on track to boast assets of more than £700m.

Now Shore is looking to repeat its success in Germany by opening a Berlin office. The news, announced by the group yesterday, makes Shore one of the few smaller London players to make a move abroad.

It is confident that Germany is a growth market - the country is increasingly viewed as a gateway to Central and eastern Europe. Through its Berlin office, Shore hopes to make money from offering locals firms corporate finance services and the prospect of an AIM float.

The group also has a growing hedge fund management business. Nevertheless, the bulk of its revenues come from more traditional stockbroking activities. This makes the company very dependent on the state of the wider equity market. Despite the wobble suffered by stock markets around the globe at the start of the summer, indices have recovered and so have company floats, especially at the small-cap end of the market where Shore is focused. At 16 times forward earnings, the stock is worth buying.

Paddy Power

Our view: Hold

Share price: €14.25 (-€0.05)

The bookmaker Paddy Power is considering the introduction of fixed-odds betting terminals (FOBTs) across its Irish estate. Given that two-thirds of the group's shops are located across the Irish Sea, such a move could transform its profitability. FOBTs have certainly done so for UK bookies since their introduction nearly four years ago.

Until recently, they have been considered illegal in Ireland. However, the law that covers gaming in the country was written in the 1950s and is increasingly viewed as failing to legislate for their existence.

Paddy Power says it will not lead the way with the introduction of FOBTs, but should one of its rivals make the move it will definitely follow suit. Meanwhile, the Irish government is looking into the whole issue of whether to deregulate gaming in the Republic.

In the UK, FOBTs contributed €3.6m (£2.4m) to total income in Paddy Power's first half, a rise of more than 100 per cent. Group pre-tax profits rose to €20.5m, from €18.4m. Even without the legalisation of FOBTs in Ireland, the stock is worth holding.

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