City Talk: Mortgage wars leave Abbey exposed

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The Independent Online
Gloom in the housing market may, at long last, be waning, as house prices show the first real gains in many years. But, inevitably perhaps, there is a downside.

This time, it is the mortgage wars, which have been the incentive to tempt homebuyers back into the market. The Halifax revealed its share of new mortgages had fallen from 20 per cent to a mere 3 per cent, as it weighed the benefits of market share against the need to protect margins for future shareholders.

As well as serving as a warning to investors awaiting the Halifax flotation, it is also a pointer to the quoted mortgage providers.

Of these, Abbey National (605p), with 60 per cent of its profits still dependent on its UK mortgage book despite valiant efforts to diversify, looks to be one of the most vulnerable. With a lack of alternative businesses generating decent margins, expect weakness in the shares.

L Gardner should have good news this week for shareholders. The engineering group, manufacturer of the Gardner engine, is expected to announce substantial orders.

New customers for its remanufacturing arm, where it overhauls old engines, and auto components business, including Rolls-Royce Aerospace and GEC, should show orders worth pounds 5m.

Floated last year at 125p, on a historical p/e of 10.3, the shares now stand at 160p. Forecast pre-tax profits this year are expected to reach pounds 2.4m, according to house broker Teather & Greenwood. That leaves the shares, on a prospective p/e of 11 for 1996, trailing the sector's 15.83. Buy.

At the start of the year, we tipped Vega (338p), the software engineer, after decent interim figures. But the unexpected departure of its managing director has seen the shares pretty much marking time.

While growth for the full year has slowed to 19 per cent at the pre-tax profit level, from 25 per cent in the first half, the group has won a role in the Nimrod early warning aircraft consortium, supplying training software.

It has also bought a Dutch software business, Selmer, which gives it a good commercial customer base, against Vega's previous reliance on the likes of the European Space Agency and the Ministry of Defence. Hang on.

Courtaulds Textiles (324p), the textiles manufacturer, looks set to be stuck in a long-term decline, judging by its share price over the past five years. And further woes await, with evidence that demand from the end-users of its products remains weak.

Profits, say broker Collins Stewart, could be as low as pounds 135m this year - pounds 30m below the consensus. If that proves so, it will leaves dividend cover on an unappealing 1.3 times.

Disappointing figures from Dawsongroup, the commercial vehicle rental and leasing company, this week, saw the shares off 41p to 125p, before recovering to 135p.

The news turns the spotlight on to its lesser colleague, Hill Hire. Full- year figures from the group in June showed profits up 52 per cent at pounds 3.5m, on sales up 46 per cent to pounds 19.1m.

Margins should continue to improve, after the disposal of the light trucks business in May. And with plans to expand nationally, from five to eight regional centres, it could be a share to watch.

Broker Albert E Sharp expects pounds 4.2m in pre-tax profit this year. On a p/e of 9.4, that leaves the shares, at 117p, undervalued. Buy.

Motor racing aficionados may be interested in an Ofex offer for shares in F1 Retail Holdings, but for others the business looks too high risk.

The company hopes to raise up to pounds 450,000 through an offer of 1.5 million shares at 30p each. The group operates two stores, in Woking and Northampton, and intends to open another three shortly.

It has ambitions to expand the concept dramatically, however, with 40 new stores planned over the next three years.

F1 stores cater for the growing interest in Formula One motor racing - they sell clothing, books, videos and other memorabilia.

The company clearly hopes to catch the wave of interest for sporting fashion, typified by Premier League football. But motor racing, despite its following, in no way matches the media coverage afforded to football. Avoid.