Paragon looks a virtue

Don't build into Countryside; Intec Telecom high enough for now

The City has long seen Paragon Group, the buy-to-let mortgage lender, as a disaster waiting to happen. The floods of yuppies who bought properties to rent out would come unstuck, tenantless and overstretched on their mortgages.

Paragon's cries to the contrary have fallen on deaf ears, but another strong set of figures from the company yesterday should go some way to show the buy-to-let market is holding up. Low interest rates have helped sustain borrowing levels, and its buy-to-let loans were up 38 per cent in the first half of the year, lifting pre-tax profits 14 per cent.

The ups and downs of the housing market, Paragon argues, always make for good news in buy-to-let. Rising house prices puts buying out of reach for many people, particularly first-time buyers. The growing number of divorces and single households also boosts demand for rental properties.

But a fall off in house prices, now visible in some parts of the country, also helps rental income. Dropping prices often encourage people to hold off until it becomes clearer where prices are heading, meaning they rent for longer. Falling prices also provides Paragon's landlords - it only deals with professionals - with plenty of buying opportunities. Paragon is mainly a northern lender, picking on big university towns where demand is always high. Its average loan is only £77,000 - only 75 per cent of the property value and the credit quality of its customers is strong. The only real threat is a rise in interest rates, when landlords may find their mortgage repayments a little more difficult but this seems unlikely at present.

Paragon still has work to do in convincing investors that buy-to-let is a growth story. It upped its dividend 24 per cent yesterday, and promised further big increases. At 225.5p, Paragon is trading at just 6.5 times its forecasted earnings. At that price, buy-to-let might just be worth buying in to.

Don't build into Countryside

Countryside properties, a mid-sized housebuilder, has the problem that it is concentrated in the South-east, just when the market has turned in this hotspot region.

Reporting interim results yesterday the company said it was seeing a slower market and lower selling prices in some areas. Pre-tax profits edged up by £100,000 to £12.6m, for the six months to 31 March, but turnover fell £20m to £166m. But sales are expected to come through strongly in the second half. Margins for its development activities came in at 12.7 per cent for the interim period, below the industry average. The group is also active in the North and its areas of focus in the South-east are at least those that have the backing of the Government for development. It has land holdings in the Thames Gateway and M11 corridor, designated as the areas needed to house London's ballooning workforce. Countryside's landbank is equivalent to 22,900 homes. But the payback will be pretty long term.

In the meantime, the stock carries risk from its South-east exposure and its operational record, which is not considered top notch. Countryside shares closed down 5.5p at 178.5p, putting the stock on a forward multiple of 5.5 but in this sector that's only about average. Avoid.

Intec Telecom high enough for now

The software company Intec Telecom Systems gave out mixed signals yesterday, saying there were some signs of improvement while noting that pricing pressure remained.

Intec sells inter-carrier billing software to telecoms companies, which helps them calculate what they owe and what they are owed for calls routed between networks.

Given that its customers are generally cutting their spending budgets while pricing pressure remains, Intec's results for the six months to 31 March were reasonable. Sales were down about 4 per cent at £22.3m, while pre-tax losses narrowed to £2.3m from £3m, in line with forecasts.

But licence sales, at £4.3m in the half year, were nearly half the figure reported last year although Intec says activity picked up in the second quarter when it booked £2.9m of wins, up from £1.4m in the first quarter. However, the company estimates it has 82 per cent of this year's £50m forecast revenues in the bag. It is also bidding for £80m of new business.

Analysts reckon Intec will make a pre-tax profit of about £3m this year, translating to earnings of 1.1p a share. That puts the stock on a forward multiple of nearly 19 times. That rating means the shares are high enough until there are surer signs of an upturn.