Berkeley an attractive property

Psion; Topnotch  
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The Independent Online

Berkeley Group, the home builder and developer, is a company that manages to be both politically correct and make pots of money.

Some 90 per cent of its developments are on brownfield or recycled land. Focus most recently has been on a site in Vauxhall, London where a £300m mixed-use development plans to feature the capital's tallest residential block. Flats in this tower will go for a £1m or more. It has just sold a penthouse flat in an existing building on the site for £4m. The site had been derelict for 40 years – overlooked by generations of less ambitious developers.

Berkeley yesterday reported healthy full-year figures, with pre-tax profits up 13.5 per cent to £85.1m, for the six months to 1 October. It sold 1,318 units at an average price of £271,000.

The question that must arise with a company that caters unashamedly to the top end of the property market is what happens in a downturn?

The current shocks to the world economy were certainly felt at Berkeley – purchase cancellations doubled in September. However, the market has since improved and December has turned out to be its strongest on record.

It seems there is a steady stream of wealthy people keen to put money into the London property market – economic downturn or not. Some 17 per cent of Berkeley properties go to foreign purchasers – including the £4m penthouse – people salting money away in a safer economy. With interest rates so low, property investment seems even more attractive.

With net margins of 20 per cent, Berkeley is a class act in this lucrative niche. Full-year profit forecasts of £192m leave the stock, down 8p at 660p, on a very attractive rating. Buy.


Psion, once the flagbearer for great British innovation in the consumer electronics sector, has really lost its way after a grim year which saw it abandon its position in the handheld computer market. Its trading statement yesterday could, at best, be described as dull.

The good news was that the company expects both revenues and operating profits to be in line with current market expectations – showing that trading has not, yet, got any worse.

The bad news was that the company is carrying out a review of the goodwill on its books with regard to its acquisition of Teklogix, a firm that sells hardware and software to help others monitor their supply chains. It is also looking at the value of the various stakes it owns in other tech outfits.

That review will, undoubtedly, force Psion to take a hefty impairment charge – mainly because Teklogix, which it paid some £242m for, is still sitting in its books at about £204m.

That is clearly out of kilter with current tech valuations and suggests Psion's headline losses, already predicted to be between £80m to £90m, are about to get bigger.

Much, if not all, of the excitement that has surrounded Psion over the past few years has centred on its 28 per cent stake in Symbian, the private tech company whose technology is expected to power the next generation of mobile devices.

But, for the time being, Psion still has to shoulder its share of the losses as well as stump up extra cash to keep it going. At least it has some £15m of cash to shoulder its share of the £35m fundraising said to be on the cards. Its flotation must still be some way off.

The shares fell 2.5p to 99.5p yesterday and the valuation of £400m – or just over twice 2001 forecast sales – seems ample for now.


For a fitness club operator, Topnotch is woefully out of shape. Since listing on AIM at the start of 2000, its shares hit 201.5p before plunging faster than Geri Haliwell's weight, wiping £25m from its market capitalisation.

Building delays have set back plans to turn around tired clubs picked up cheaply from the likes of Canons and Esporta.

This caused pre-tax losses for the six months to 31 October to mushroom to £264,000 from £69,000. Better trading from more mature clubs helped turnover to increase to £6.3m from £3.8m. But at 20-odd per cent, retention rates are among the worst in the industry.

This leaves Matthew Harris, the chief executive and founder, a long way short of creating a sustainable membership base by developing a quirky product offering through themed training initiatives, such as the "power zone", themed after a nightclub, or "planet spin", based on outer space. As a result, Topnotch is unlikely to make a profit from its 19 clubs before 2003.

In the absence of a takeover bid – unlikely because Mr Harris owns 32 per cent of the stock, – the shares, unchanged yesterday at 47.5p, are a poor alternative to other health club plays such as Fitness First and LA Fitness. Avoid.