Buy Reckitt Benckiser, but not yet

Sage stands out from the tech crowd as a share to hold; Taylor Woodrow looks too expensive

Reckitt Benckiser is one of the FTSE 100's most reliable performers, with its financial robustness making up for what it lacks in glamour. Yesterday's first-quarter figures were another case in point. No fireworks, just another decent set of numbers with net income up 15 per cent to £82m on net revenues up 6 per cent to £874m.

Having already banked the synergies of 1999's merger with Benckiser, the Reckitt machine has moved relentlessly on with two fancily named cost-saving programmes called Squeeze and Xtrim. These, together with higher-margin new products, have helped push operating margins up 0.8 per cent to 13.4 per cent in the past 12 months.

Some of the products launched towards the end of last year include Vanish Oxy Action and Calgon AquaPro, an enhanced version of its water softener. Reckitt has been backing its brands aggressively with an enhanced marketing budget.

The performance in the first three months of the year bodes well for the rest of the year, with the company now guiding the market to expect net revenue growth of 4 to 6 per cent in 2003, with net income growth in the low double digits.

Acquisitions are still on the agenda though the company says that free cashflow will be returned to shareholders if suitable deals cannot be found.

The benefits of Reckitt are that it is a well disciplined, focused business with a good record of product innovation. Apart from the recent spat over the chief executive, Bart Becht's pay, it has barely put a foot wrong and the shares have responded accordingly.

The possible downside is that Reckitt shares have enjoyed the benefit of the stock market's favourable view of more defensive stocks. Now, though, the pendulum may swing the other way for a while as the "Baghdad bounce" continues and investors seek stocks with recovery potential.

Assuming full-year net profits of £460m, the shares – down 12.5p at 1,106.5p trade on a price-earnings ratio of 18. A deserved premium rating but there may be better times to buy.

Sage stands out from the tech crowd as a share to hold

Selling accounting software to small and medium sized companies might not sound the most interesting of businesses to be in but it continues to prove a nice little earner for Sage.

The company's reputation for coming up with the goods, which it upheld yesterday, helps explain why it is the only technology stock left in the FTSE 100 index. Its track record also undoubtedly goes a long way to explaining the company's rating, which at 18 times this year's earnings, is beyond the wildest dreams of most rivals.

Thanks to a trading update last month, there were few surprises in yesterday's six month to 31 March figures. Pre-tax profits were £74.3m, up 14 per cent. Sales were 4 per cent higher at £282m, with decent performances in the UK and the US, up 5 per cent and 8 per cent respectively. As already flagged, sales in Europe were down about 1 per cent.

Market conditions generally are not getting any better although it has seen a "glimmer of light" in the US. And competitive pressures, from the likes of Microsoft, remain. Currency is also an issue because about half the company's revenues come from the US, with about 23 per cent coming from mainland Europe. The impact from the movement in exchange rates knocked roughly £10m off the top line and £1.5m off operating profits.

Nevertheless, Sage is happy with analysts' forecasts for the current year – of a pre-tax profit estimated at £150m – assuming economic conditions don't deteriorate significantly.

With just over 3 million smaller company customers, Sage is clearly not overly reliant on any one client and with two-thirds of sales coming from maintenance contracts, it has a decent degree of visibility.

The shares, up 3.5 per cent at 147p yesterday, are worth holding.

Taylor Woodrow looks too expensive

Like all UK housebuilders, the question dogging Taylor Woodrow remains "is the housing market about to crash?" The question irritates Taylor Woodrow as it has not experienced plunging sales or prices. It also points out the company has relatively little exposure to the London market which has been softening. Demand is stable in the regions, it says.

Yesterday's annual meeting statement admitted that the UK market was returning to more normal levels after a boom year in 2002. Average selling prices are still ahead of last year, though the group says the next few weeks are important as they form part of the main selling period.

In North America, sales are strong, though this only accounts for 26 per cent of the group's housing business. California is particularly buoyant and Canada is also ahead of expectations despite adverse weather and fears over the Sars virus.

The construction order book is up to £785m, though this business is now a relatively small part of the group.

Assuming full-year profits of £280m the shares, which closed 2.5p higher at 201p yesterday, trade on a forward price-earnings ratio of six. The shares are a punt on the housing market so after the boom of last year, this does not look the time to buy. Avoid.