Investment Column: McCarthy & Stone a good bet

McCarthy & Stone, the specialist builder of retirement homes, has had a long climb back from the low point of 1991-92 when the group lost pounds 20m and the shares hit 18p.

They are still a long way short of the glory days of 1987, when the shares were nudging 600p, but pre-tax profits in the six months to the end of February have tripled to pounds 6m. Even after stripping out one-off exceptional profits on disposals, the operating profit more than doubled to pounds 5.5m.

The group sold 443 one or two-bed flats in the latest six-month period, 24 per cent more than at the same stage a year ago, and average selling prices rose by 8 per cent.

The stock of finished flats also rose from 945 in February last year to 1,200 a year later, but that is seen as a strong point ahead of the peak selling season in spring and summer, when two-thirds of sales take place.

It leaves the group well placed to cope with the increasingly visible recovery in the housing market, which will make it easier for retired couples to sell their family homes at a satisfactory price and move into specialised accommodation.

A modest rise in interest rates is no real threat because most buyers will not need a new mortgage, while it should help the company which currently has pounds 5m in the bank.

The biggest problem is planning permission, but the group prides itself on its high success rate in reversing refusals at the appeal stage. Equally, the business should be largely election-proof since most local authorities are already either Labour or Liberal.

Reservations in the past few months are 35 per cent up on a year ago, and the medium-term prospects look good. Analysts have upped their forecasts for the year to September from pounds 13.5m to pounds 15.5m, excluding exceptionals of pounds 1.5m, or a clean 9p of earnings, and from pounds 17m to pounds 19m or 10.9p of earnings in 1997-98.

The shares rose 9.5p to 129p yesterday, putting them on a forward p/e of 12. One of the safer bets in the current market.