Hanson rates as solid as a brick wall

Hanson, Workspace; Majestic Wine
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The Independent Online

Hanson, the bricks and cement group, has been a reassuringly dull investment while the technology and telecoms stars have fallen out the sky.

A positive trading update yesterday helped to explain why. It is sufficiently diversified geographically to weather a cyclical downturn, and sufficiently experienced managerially to know how to mitigate the worst effects of a slowing economy. It was upbeat comments on the outlook for trading in the US that were most pleasing, since Hanson does 60 per cent of its business there.

The company is a big beneficiary from the US government's mammoth programme of public works, which have begun to kick in. Many early delays, as state governments prioritised and planned their projects, have been overcome.

This infrastructure spending should offset the costs of stubbornly expensive energy and any downturn in the US housing market. Not that there has been any sign of weakening demand so far. If anything, poor weather that delayed construction projects in Texas could mean that builders will be working faster and buying more from Hanson, to try to meet completion dates in the second half.

Hanson conceded that the housing market could take a dive, of course. But chief executive Andrew Dougal has put the brakes on acquisitions in order to beef up the balance sheet and protect Hanson's credit rating.

There are concerns over Hanson's bricks business, which is having a bad time in continental Europe, thanks to the weak German economy and soaring natural gas prices, which make the brick firing kilns more expensive to run. Hanson is a powerful player, and its inability to exert more pricing power has been a disappointment, though Hanson insists it is making progress.

Demand and margins in Australia – where Hanson bought Pioneer last year – are poor, too. But signals from rivals in recent days suggest that market could have bottomed.

Interim results due in August are set to show profits unchanged from last year's £132m, but analysts nudged up their profits forecasts for the full year. ABN Amro, the house broker, predicts £325m, giving a forward price/earnings figure of 13 on shares up 9p to 505p. The weakness of the pound against the dollar could make the figures look even healthier.

Although Hanson shares could have a bumpier ride while the true shape of the global economic slowdown emerges, there is more value here in all but the worst-case economic scenario. Buy.

Workspace

Workspace, the property company, provides office and workshop space on flexible leases for entrepreneurs seeking their first base after outgrowing the garden shed.

The company has been well loved by the stock market, and rightly so. Yesterday, it said it had more than doubled underlying profits in the year to March, to £9.5m. It also banked £10.1m from selling unwanted property, and has now abandoned the Midlands in favour of London and the South-east.

Chief executive Harry Platt has proved an astute portfolio manager, and investors should have little fear that he will squander his £100m war chest. Workspace's net asset value, up 32 per cent to £11.93, continued its steady march, which has pushed the shares from £2.70 five years ago to £13.60 at their peak earlier this year. They were up 35p yesterday at 1,185p.

The future for rental and other revenues looks healthy, too. The company invested £1m in Vylan, a joint venture selling high-speed internet services to tenants in three of its buildings, and could sell excess capacity on the broadband networks it has installed. And, longer term, the company is confident the government's initiatives to encourage entrepreneurship will boost demand.

The only fear is that an economic slowdown could push many of its tenants into bankruptcy and bring down occupancy levels. Currently 90 per cent, these are already forecast to fall a little this year.

Such worries could be easily shrugged off if only Workspace were a cheaper stock. But it is on a forward price/earnings multiple of 24 and has traditionally traded very close to, or even higher than, its net asset value. That is practically unheard of in the property sector and asks too much of managers. Shareholders sitting on healthy profits should considering banking them.

Majestic Wine

It has been the longest hangover in the history of champagne, but Majestic Wine finally shook it off yesterday. Investors in the wine warehouse group have had a headache since the Millennium, when Majestic was selling vast quantities to revellers. The shares lost their fizz soon after, as the market expected the group to go backwards in 2000.

Results for the year to April 2001 proved the worries were overdone. Majestic squeezed out a £4,000 rise in pre-tax profit, still £4.5m when rounded up. And sales were 7 per cent higher, at £86.8m, thanks to nine store openings. A further eight are planned in the current year, taking the total to 103.

Now it is time to crack open the bubbly once more. Like-for-like sales growth in the last quarter was 16 per cent, as the tough pre-Millennium comparitors fell away, and the latest figures show that it is still accelerating. Now Teather & Greenwood reckons that profits could hit £5.3m this year.

Investors celebrated by chasing the shares 41.5p higher to 302.5p, putting them on a 2001 p/e of 12. Investors should follow the lead of customers: buy in bulk.

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