Investment Column: Redrow's shares are looking over-priced

Pittards; Falkland Islands Holdings


Our view: Avoid

Share price: 130.4p (+0.1p)

Comparing yesterday's full-year numbers from the housebuilder Redrow to what it churned out 12 months ago is like looking at chalk and cheese. A year and a rights issue later, Redrow's results were ugly.

The group said it had returned to a pre-tax profit, albeit only £700,000, but the market will have been encouraged by news of more completions, a larger land bank and, crucially, higher average selling prices.

So, is all good for Redrow? Well, almost. The chairman, Steve Morgan, said that despite the improved figures, the housing market was still being stymied by a lack of mortgage finance. He called for a return to 95 per cent mortgages that should be backed, he said, by a Government insurance indemnity scheme.

Good luck, Steve. We doubt his proposals, however sensible, will gain much traction and investors will be left to contend with the market in its current, unaided, state. We would worry that poor sentiment could restrict the market and therefore put pressure on Redrow's share price, which has been falling steadily for the past six months and dropped by ?? per cent yesterday.

Despite the general trend, the shares have risen by a third in the past fortnight, with analysts at Panmure Gordon pointing out that the 2010 calendarised net asset value of 146p puts Redrow at a premium to others in the sector. Investors should also note that there is no dividend, with Mr Morgan restating that payments will return only at "the appropriate time", whenever that might be.

The long-term trend in housing is favourable but that does not mean investors should buy a pricey share today. There are points to recommend Redrow, not least the improvement since Mr Morgan returned to take day-to-day control of the business, as well a successful launch of the Heritage housing range that has so far sold well. But for the time being there is not enough to attract us, so avoid.

Pittards

Our view: Speculative buy

Share price: 2.5p (+0.25p)

Pittards produces leather for everything from gloves to shoes, so its fortunes are linked to fluctuations in consumer demand. Stronger retail sales mean more business for its customers, which include big international brands.

While the Yeovil-based company has seen some recovery in demand so far this year, it concedes that, beyond underlying improvements in trading, the market is largely being driven by restocking. Inventories thinned out during the slump and the restocking is expected to be complete by the end of this year. So consumers will be key for Pittards' fortunes going into next year. Given the uncertain outlook, particularly in key markets such as the US and Britain, this may not sound like the most attractive of investments.

But the market seems to be pricing in the concerns while overlooking the recovery prospects. Pittards' stock trades on a multiple of less than eight times forecast earnings for 2010, falling to 5.6 times in 2011. That seems to suggest that shoppers are poised to stay at home. We disagree. The economy may be on life-support but it is not dead, so we make Pittards a speculative buy.

Falkland Islands Holdings

Our view: Hold

Share price: 344.5p (-3p)

Falkland Islands Holdings is really a mini-conglomerate. In addition to providing just about everything on the islands themselves, it also owns the Portsmouth Harbour Ferry Company and Momart, which deals with the handling and storage of fine art and antiques. But what excites everyone is its holding in Falkland Oil and Gas (FOG), whose shares fell precipitously in the summer when the results from its exploratory drillings in the South Atlantic were anything but good.

FIH fell along with it and, while the FOG holding is really only the icing on the cake, oil and the potential for finding it in the South Atlantic does have a fairly big impact on FIH's other operations on the islands. It affects such things as car sales, property prices and the like. So the bad news from the test drilling was a big disapointment. Yesterday's AGM statement indicated that the UK economic climate is not helping the businesses here.

However, the group's finances are looking perky, not least because it has prudently paid down debt and cut interest charges. We said buy FIH's shares at 310p last September and those who did so have been rewarded.

That said, the shares leapt to more than 550p this summer so it seems pointless to sell now. Relying on the oil is a gamble but the advantage of investing in FIH is that it still has a solid business even if no oil is found. The shares are not cheap at 19 times 2011 forecast earnings and a prospective yield of 2.45 per cent, but hold for now.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor