Bottom Line: McCarthy stays up

McCARTHY & Stone's survival of the housing slump has surprised many but there seems little doubt now that it will live on to fight another cycle. Having seen most of its rivals either go bust or pull out of the retirement homes game altogether, it may even be a net beneficiary of the recession.

The half-time loss of pounds 400,000 should be the last red ink in a series that has lasted since 1989, notching up an aggregate deficit of almost pounds 50m. With home prices rising and the average cost of land going through the profit-and-loss account falling, margins are set to widen at a healthy rate.

The key to its success in the upturn will be not paying too much for land. But it has an advantage over conventional housebuilders in that regard because its town centre sites compete with commercial developers who are not yet out of hibernation.

Whether that merits a forward p/e of 54 for the year to June or 22 to the middle of 1995 is debatable, even with a healthy balance sheet following last month's rights issue and a dominant market position. The shares, 2p higher at 65p, are taking a lot on trust.