Investment Column: Update shows why Savills is hot property

PV Cystalox Solar; Xaar

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The Independent Online

Our view: Buy

Share price: 314.1p (+1.6p)

Investing in property-related stocks is tricky – at least in the short to medium term. Large chunks of the London-listed sector are hostage to the domestic housing market, which looks sluggish, to put it mildly.

But there are exceptions, and Savills is one of their number. The last time we looked at the company, we opted to buy, reasoning that its international reach, coupled with exposure to the resilient upper end of the UK market, gave it an edge.

Yesterday's half-yearly results confirmed our confidence. The group said revenues in the six months to the end of June had climbed by 10 per cent, with pre-tax profits surging by nearly 40 per cent, as it drew strength from activity in the prime central London property segment and from the Asia-Pacific region, which remains buoyant. Greater China was particularly strong, according to the company.

Yes, there has been some slowing of in activity in the mainstream markets in Hong Kong and mainland China, the result of Government efforts to cool activity. But Savills remains on an even keel, thanks to its position in the prime residential market.

Savills's focus on the upper end should continue holding it in good stead, even if there are some minor bumps along the way.

Moreover, the exposure to high-end London properties inspires confidence, given the prevailing concerns about global growth. As Savills itself noted, "prime London residential markets have been seen as a haven for the world's investors".

All in all, the update was reassuring, both for us, and indeed for the markets. Just look at the share price. Savills managed to rise – yes, rise – despite the falls seen elsewhere.

Also reassuring is the fact that, despite showing resilience, Savills trades on multiples of around 11.6 times forward earnings for this year, and on under 10 times on the estimates of next year, according to UBS. At the same time, it boasts dividend yields of more than 4 per cent.

PV Cystalox Solar

Our view: Avoid

Share price: 19p (-0.75p)

PV Crystalox Solar hasn't been shining since its profit warning in June.

Its products are crucial to the production of solar cells used in solar power plants. Trouble is while sales volumes have been increasing, prices have been falling.

An excess of inventory combined with an unexpected slowdown in the key markets of Italy and Germany will result in a second-half loss. Evidence of the problem could be seen in yesterday's first-half results: shipments of its wafers increased by 23 per cent but their price fell 6 per cent. Overall revenues grew 16 per cent to €129.6m (£113m). Pre-tax profit was €24.6m from €9.5m.

However, there is no dividend to conserve cash ahead of a tough trading period. There is at least €41.3m of cash on the balance sheet. But whether to buy now depends on your view of how quickly the solar market will recover. High-minded pledges to improve renewables have been going out of the window thanks to the bleak financial climate. Just look at Britain.

The company trades on 4.2 times 2011 forecast earnings, but it may lose money for some time unless the market picks up very quickly. Long term there's good potential and there is increasing interest from the East, places such as China and Taiwan.

But the short term outlook is bleak and a buy now would be highly speculative. We would keep away.


Our view: Buy

Share price: 267p (-10p)

There was plenty of good news to be found in Xaar's interim results yesterday. The printing technology group revealed its revenues had risen by a third over the first half of the year, while both its profit before tax and gross margin jumped.

The key to Xaar's improved performance has been the increasing demand for its so-called "Platform 3" products, particularly from within the ceramics industry.

Indeed, the company has been consistently upbeat on the innovative technology for a while now, and is in the process of increasing its production, which will come to fruition over the next year.

For investors, therefore, it will be this that drives further gains in its share price. Xaar is not particularly cheap, having roughly tripled in the past two years, yet the long-term expansion plans suggest there will be more to come for a little while yet.