The Investment Column: Growth prospects make BSS a buy

Plenty to go for at 'buy and build' Creston - Smoking ban in Scotland is bad news for Belhaven

The British housing market is slowing, but the heating and plumbing firm BSS is still going strong. That's partly because bathrooms are increasingly seen as fashion items that people have more of in their houses and change more frequently than in the past.

The British housing market is slowing, but the heating and plumbing firm BSS is still going strong. That's partly because bathrooms are increasingly seen as fashion items that people have more of in their houses and change more frequently than in the past.

BSS, which serves domestic and industrial markets, unveiled bumper first-half profits yesterday and said demand remained strong in the first six weeks of the second half - which includes the important winter heating season - amid signs that costs are coming down.

Homeowner demand combined with the Government's social spending catapulted pre-tax profits before goodwill and exceptional items to £14.5m in the six months to the end of September. That was up 39 per cent from a year earlier and ahead of analysts' expectations.

The company is sanguine about the cooling housing market: Peter Wood, the chief executive, believes that people will spend more on renovating their existing properties. The group is also benefiting from increased government spending on schools and hospitals, as well as local authority spending on refurbishing social housing. BSS has won a big contract at Heathrow airport's new Terminal 5 as well as work for three new private-finance initiative hospitals.

The group is moving closer to achieving its aim of having a business mix of 60 per cent heating products and 40 per cent plumbing, from the current 70:30 per cent, and could well achieve its target around the end of its financial year.

The only dark spot on the horizon is the commercial market, which has been sluggish.

At 822.5p BSS shares trade on an annualised 10.5 times forecast 2005 earnings, compared with a sector average of 11.2 times. With the group estimated to grow at 20 per cent a year for the next couple of years - more than its peers - this discount is unjustified. Buy.

Plenty to go for at 'buy and build' Creston

A growing number of listed companies are ploughing the market research, PR and marketing services (such as direct mail) furrow. Incepta, Chime, Media Square and Aegis are just some of those involved in some, or all, of these markets.

One of the newcomers is Creston, which is taking a "buy and build" approach with the aim of rapidly becoming a mid-size player. The company has made five acquisitions in its three and a half years of existence, using a mixture of cash, debt and equity. With a market value of £38m now, Creston wants to buy more in existing areas, plus new sectors such as advertising.

Don Elgie, the chief executive, says the company does not want to become too dependent on any one of its areas of activity. He believes that problems seen at Chime and Incepta from the market downturn were severe because those companies became too dependent on PR.

It remains to be seen whether Creston can achieve the sort of balance it is after. Yesterday's interim results demonstrated the impact of acquisitions: pre-tax profit was up 95 per cent to £1.5m, while turnover grew 24 per cent to £16.0m. On an underlying basis, sales and profit grew 8 or 9 per cent.

Creston only has a tiny market share, so there's a huge amount of growth to go for, even organically. At 150p, the shares trade on a forward multiple of 15, which is still attractive given the good prospects. Buy.

Smoking ban in Scotland is bad news for Belhaven

The share price of Scotland's largest independent brewer, Belhaven, has had something of a hangover of late, falling from a high of 488p to 421p prior to yesterday's results. The main reason? A blanket ban on smoking in public buildings in Scotland, scheduled to start in March 2006.

The company posted half-year numbers yesterday which, even by the high standards it has set in recent years, were above expectations. Turnover was up by 20 per cent to £56.7m and pre-tax profits rose 27 per cent to £9.7m. Belhaven's pub estate grew by another 10 per cent and it is expecting to grow it by another 17 per cent next year. Champagne results on a beer budget, in anybody's book.

The smoking ban might bring a major change to this business. There is no way of telling what might happen, but evidence from Ireland points to a 10 per cent decline in alcohol sales to go with an 18 per cent fall in tobacco sales. Going outside for a smoke in Scotland isn't for the faint-hearted, at least for much of the year.

Government pressure to curb binge drinking isn't going to ease, and a Scottish company blaming "poor weather", as Belhaven did, for tough market conditions is a bit like Eskimos blaming snow. Market conditions are not going to get any easier.

Nothing goes up in a straight line forever, and while the track record of Belhaven's management is outstanding, improving on these numbers is going to be a mighty task in the short to medium term. Sell.