Aegis could still please investors despite the lingering gloom

Taylor Woodrow worth moving in to; Well connected ITnet riding out tech sector woes

As recovery plays go, the media buying group Aegis is clearly still working on its script.

The prologue kept investors entertained at the start of 2002 and the group's shares rose to 125p on hopes of the advertising sector improving in the second half. Aegis cut act one short, however, with a gloomy update in May, since when the stock has struggled.

The severity of adland's downturn has taken centre stage in Aegis's unfolding plotline. While lingering gloom about the prospects for a double-dip recession in the United States is likely to taint recovery prospects for media stocks for some time, interim results out yesterday from Aegis suggested its story could still end happily.

Doug Flynn, the chief executive, said he had seen early signs of green shoots in the US advertising market and even forecast a 0.5 per cent uptick in adspend there for 2002. In the first half, despite tough market conditions, Aegis managed to impress with a number of new business wins, including a big new account for the Japanese carmaker Hyundai.

The big problem is still Europe, where adland traditionally lags the US by six months. Aegis relies on the region for the bulk of its turnover, yet expects overall adspend in Europe to be down by 2.7 per cent for the year as a whole. Aegis's Carat media buying agency increased turnover by 29 per cent in North America while sales fell by 6 per cent in Europe.

Figures for the six months to 30 June showed that revenues had increased by 9 per cent to £273.3m. Excluding acquisitions, 0.5 per cent of this was underlying growth, while pre-tax profits fell slightly to £17m from £17.6m. Changes to some elements of its accounting policy made gross margin comparisons difficult but under the old method they would have shown an increase to 7.1 per cent from 6.6 per cent.

The recovery play aspect – and the reason why Aegis was chosen as one of The Independent's 10 share tips for 2002 – should strengthen as the year continues, with Europe playing catch up to the States. With the added attraction of scarcity value as the last remaining independent media buying agency of any size, don't give up on the shares, up 2.25p to 71.5p, just yet.

Taylor Woodrow worth moving in to

Taylor Woodrow is a famous construction company that ought to be seen as a housebuilder these days. Some 85 per cent of group revenues now come from housing, after last year's acquisition of Bryant. This includes a sizeable homes business in North America, which was bolstered recently with the purchase of a housebuilder in Arizona – to add to its existing Florida, California and Toronto interests.

Yesterday's interim figures showed that Taylor Woodrow is rather good at the business of building houses. The shares rose 11 per cent after operating profit climbed 13 per cent to £122.4m, for the six months to 30 June.

The Bryant deal has paid off – this division saw operating profit climb 39 per cent to £70.4m. The company's historic strength in construction gives it a key advantage in building homes – the group can employ itself to clean up and prepare "brownfield" sites for development. Other housebuilders have to contract out this operation to recycle previously used land. Currently 20 per cent of the construction business is internal and this is set to rise to 30 per cent.

Taylor Woodrow confirmed the departure of its finance director Adrian Auer. It has been reported that there had been a boardroom bust-up. However, Iain Napier, the chief executive, dismissed this idea and said the only reason Mr Auer was leaving is because he did not want to uproot his family from the South.

Taylor Woodrow is to move its headquarters from Staines to Solihull, in order to save £2.3m a year as part of a broader cost-cutting drive to save £30m a year by 2004. Some 180 jobs will go by the end of the year.

Analysts liked the cost-cutting plan, though some said Taylor Woodrow's figures compared unfavourably with those reported recently by other housebuilders. The company has been affected by the slowdown in the Californian housing market and the ongoing sale of its property portfolio. Overall, the housing sector appears to be set fair.

Taylor Woodrow shares rose 17.75p to 185.75p, putting the stock on a below sector average rating of 6. Worth buying.

Well connected ITnet riding out tech sector woes

Given the dire trading conditions that all IT firms are up against, ITnet is not doing at all badly thanks, mainly, to the IT work it carries out for government.

Not that it has got off easily – sales in the six months to 30 June fell 2 per cent to £85.5m. But things could have been much worse. A 16 per cent jump in public sector revenues was offset by a 17 per cent drop in sales in its commercial business.

Its commercial business has been hurt, along with the rest of the sector, after customers, particularly those in the finance sector, dramatically cut their spending. A firm grip on costs, however, fed through to the bottom line. Profits before exceptionals rose 35 per cent to £7.1m and margins moved up to 18.5 per cent from 16.7 per cent.

Reassuringly, the company's forward order book swelled 22 per cent to £304m and the chief executive, Bridget Blow, predicts £87m of that will fall into next year, giving the company a good degree of visibility.

Better still, current trading continues to be "good and in line with management's expectations" with more of the same on the cards: weak commercial business offset by solid public sector business.

And Ms Blow is also confident that public sector work will remain strong because of a push from government to modernise its systems. There was a 45 per cent increase in the company's public sector order book in the first half of the year.

ITnet's broker, Dresdner Kleinwort Wasserstein, yesterday upgraded its profits forecast by 10 per cent to £14.7m for the current year. It also moved its profits forecast for 2003 up by 10 per cent.

The new forecast of earnings per share of 14.1p in 2002 puts the shares, up 23.5p to 167.5p yesterday, on a multiple of 12 times. Given the resilience the company has demonstrated in the first six months of the year, that does not seem excessive.