The Investment Column: Wolseley looks set to keep growing

Wolseley was keen to play down concerns about a slowing US housing market yesterday. Given North America accounts for 65 per cent of total sales at the plumbing supplies and building materials group, and has been largely behind the awesome profit growth in recent years, this is no surprise. Interim results yesterday revealed a 40 per cent jump in turnover at the division to £4.3bn and a 39 per cent increase in profits to £270m.

The worry about the US housing market has been caused by creeping interest rates rises. Nevertheless, the world's biggest economy remains in rude health, Wolseley says, as unemployment stays low and growth continues. It does not expect this state of affairs to change soon, so investors can expect more growth across the Atlantic.

In the UK, things are not so bullish. Yet despite the contraction of British market, Wolseley still managed to deliver a 5 per cent increase in profits. Weak consumer confidence is to blame for the tough conditions but relief is on the way, according to Wolseley, which expects things to start to improve this year.

There has been much speculation of a possible bid by group for the underperforming Kingfisher. Wolseley management played down this scenario yesterday. They stressed the two companies occupy different segments of the DIY market - Kingfisher sells directly to consumers while Wolseley sells to professional contractors such as carpenters and masons.

Wolseley posted record profits for the 10th occasion in a row (at the pre-tax level they rose 21 per cent for the company as a whole to £360m). Given this track record, the slight premium at which the stock trades relatively to the wider building materials sector is justified. The shares are at an all-time high and look set to continue their upward march. Hold.

HMV

Now Permira has walked away from a bid for HMV there seems little reason for holding the shares. The music retailer is without doubt in decline and a fresh offer is highly unlikely. It is expected to post a £100m profit this year, falling to about £90m in 2007, but there is a serious danger these forecasts will have to be downgraded.

HMV continues to lose market share to online retailers and supermarkets. Trading conditions in its core music market remain difficult with little sign of an upturn. Downloading music from the internet, although a relatively small part of the market, is growing fast and weighing on prices. DVD sales, which have in the past sheltered HMV from the difficult music arena, are also under pressure from the likes of Amazon and Tesco.

There has been excitement about the computer games market - where new hardware is prompting strong demand for software - but this cannot save HMV. It accounts for less than 10 per cent of the retailer's sales. If the fate of US music retailers is anything to go by, HMV's future is bleak. At 180.25p, its shares are an outright sell.

RAB Capital

RAB Capital, the London-based hedge fund, seems to be going from strength to strength. It reported a 46 per cent rise in annual pre-tax profits to £25.6m yesterday. Analysts expect this to increase to £37m by the end of 2006. Funds under management rose by 50 per cent to $2.6bn (£1.5bn) for the year to December 2005 and have since risen further (they stood at $3.2bn on 16 March).

RAB makes money by taking a 2 per cent fee from this total, plus 20 per cent of any upside it delivers from investing this cash. The better its performance the more money the company makes. Hence, the group has done very well from the 3,600 per cent increase in the value of its flagship Special Situations fund since it was created three and a half years ago.

Although there has been much publicity about the rising numbers of the hedge funds, RAB believes that setting up a fund is getting increasingly costly because of the ever more onerous regulatory requirements.

This trend puts earlier movers such as RAB in a great position to cash in on the runaway growth in the industry. When you strip out the group's cash pile its shares trade at just 11 times forward earnings, making them a buy.