Hold on to Halma, you know it'll be safe

Don't order N Brown for now; TTP is a rare beast: a telecoms buy

Stephen O'Shea can get very excited about lift doors. And water leak detectors. And fire alarms. And most excited of all about pressure valves to stop railway carriages full of flour from exploding. Which is all just as well, because Mr O'Shea is the chief executive of Halma, whose subsidiaries make all these safety gadgets and more.

It can be a racier business than perhaps it sounds. Halma has been feted in the City for annually hiking its dividend by 15 per cent and, down 5p to 115.5p yesterday, it has a safe dividend yield of 5 per cent.

The group's subsidiaries typically have a market leading position in their niche, and growth is often driven by ever-tougher health and safety requirements. Such legislation tends to be "exported", as countries upgrade their safety laws to best practice.

Yet it is never very clear what the underlying growth rates of the businesses in the Halma family amount to. The finances are somewhat obscured because it routinely branches out into new product areas with choice acquisitions. There was another one yesterday: BEA of Belgium, which makes sensors for opening (and stopping people getting trapped in) automatic doors, and which is being purchased from its second-generation family owners for up to £60m.

Mr O'Shea thinks Halma grows at 12 to 15 per cent per annum over the economic cycle, with between two-thirds and three-quarters of that from organic growth. For the moment, though, growth is sluggish indeed. The trading update yesterday implied a downgrade to many brokers' forecasts. Despite the acquisition, which will immediately enhance earnings, profits in the first half of Halma's financial year will be slightly below last year's. The manufacturing recession is such that Halma has seen poor sales to industrial customers who use its resistors or other safety devices in their manufacturing processes.

On ABN Amro's forecasts for the current year, Halma's shares are valued at 13 times earnings. That's a whopper of a premium to the engineering sector – which trades on about 8 times – but can be justified since Halma is relatively insulated from the ravages of the economic cycle, well run and continues to throw off cash.

Hold.

Don't order N Brown for now

It has not been a very happy year for N Brown. The shares have been falling all year from a high of 280p in January to the current level of 157.5p and the market has become nervous that this traditional mail order retailer will find its core business invaded by rivals.

N Brown has enjoyed a cosy position offering direct mail order to older customers. With the old-fashioned agency home shopping giants such as Littlewoods and GUS losing sales, N Brown has gradually built market share.

But the sector is changing. First, older consumers do not necessarily want to be treated as "old" any more. They don't all want fur-lined zip-up booties and comfy cardies and they are being wooed by the mail order divisions of fashionable street retailers such as Debenhams, Arcadia and Next. Second, the sale of Littlewoods to the Barclay brothers might inject new life into one of N Brown's main competitors.

N Brown is right that the UK's demographics are on its side. There will be 8 per cent more people in its core 40 to 70 age group in 2006 than there were last year. It also says it has recognised shifts in customer attitudes and has started to segment its offerings so that the 45 to 55 age bracket receives slightly more stylish mail-outs than the rest. But it is still worrying that the "older" catalogues saw a 16 per cent fall in sales in the half, and this can only partly be explained by lower marketing spend.

Given all this, the first-half results were good, with profits up from £25.3m to £27.1m. Recent sales are flat on last year but this is due to the mild autumn weather and tough comparisons.

The market is hoping for evidence that the new chief executive, Alan White, can drive sales growth. But on reduced full-year profit forecasts of £60m the shares trade on a price-earnings multiple of 11 and should be avoided for now.

TTP is a rare beast: a telecoms buy

The share price graph may make TTP Communications look like a Marconi or an ARM Holdings, but this telecoms equipment group was yesterday able to boast of a big leap in profits and more progress in getting its technology used inside mobile handsets.

Operators and manufacturers are under severe strain now that pretty much everyone in Western Europe who wants a mobile has one, and subscribers wait for new generation services to appear. But this is not the case everywhere, and certainly not in the Far East where TTP has good links with the little local firms emerging to challenge the global dominance of Nokia or Ericsson.

So TTP has defied the gloom in the sector to produce a pre-tax profit for the six months to 30 September of £3.0m, up 22 per cent.

It has switched back a large part of its research budget into improving second-generation handsets, anticipating that there won't be any volume demand for 3G until 2005. It will also help allay fears that TTP's fortunes are entirely hitched to the success of 3G. The group has also started doing lucrative design work on behalf of handset makers, who are keen to cut the costs of their research and development.

Down a ha'penny to 31p, TTP shares are on barely nine times this year's earnings. Long-term buy.