Half-year report shows room for improvement

FPDSavills looks fair value; Keep Teather on a tight leash

It's time for the half-year report on The Independent's share tips for 2002 and, sadly, it doesn't make for very uplifting reading. The portfolio of 10 stocks, which was outperforming the market at the end of the first quarter, is now down 19 per cent. That represents an underperformance of the FTSE All Share, which is down 12.4 per cent.

Several of the selections were recovery plays which had started to enjoy a re-rating in March but have since been knocked by weakening markets. One example is Aegis, the media buying group. Having started the year at 93p it enjoyed a strong run in March, rising to 125p on hopes of an improving advertising sector in the second half. However those hopes were dashed by a statement in May when Aegis said there were no signs of recovery. Subsequent profits warnings from advertising agencies such as WPP and Cordiant have further hit shares. Even so, Aegis is still seen as well-placed to benefit from a recovery, when it happens, as well as being seen as a attractive takeover target.

BT is another tip that has fallen back after making some progress early on, though it has outperformed the market. The City responded positively to new chief executive Ben Verwaayen's strategic review which puts in place new financial targets and places broadband technology at the heart of the group's plans. The shares have fallen back as a result of further woes on the telecoms sector but they still have recovery potential.

BA has benefited from its move to cut jobs and reduce its fleet. After reporting in May its worst full-year loss since privatisation, the group has reported a 10 per cent drop in passenger volumes for that month and reduced fares on short-haul routes to compete with low-cost carriers.

Chubb, the security services company, offered a tantalising glimpse of significant share price upside when it emerged in May that it was involved in merger discussions with Securitas. Days later the talks were called off and the shares have slumped back.

Mothercare, the childrenswear retailer, has yet to show progress, though its performance was always going to be second-half weighted. Board changes, including a search for a new chairman, could help.

ScottishPower has recovered much of the lost ground after the group announced changes to its dividend policy early in the year.

Out worst performers are in the technology sector which has gone from bad to worse. Logica, the IT services group, crashed out of the FTSE 100 index last month after a grim profits warning in May. The shares are down 70 per cent and it's hard to see a recovery in the second half.

Shares in BTG, the technology development group, are down by more than 50 per cent after losses of £22.6m in the year to March.

Even our wild card, Clean Diesel Technologies, has stalled. Sharply up in the early months of the year, the shares have fallen despite a decent update from the company in March.

FPDSavills looks fair value

While FPDSavills "for sale" boards grace well-to-do houses up and down the country, its parent company Savills offers punters a broader investment choice than just a traditional two-up, two-down semi, however grand. As an international property group, Savills' interests span the UK, Europe and Australasia, where its remit ranges from managing facilities for the Hong Kong government to finding property for equity-weary investors to sink their money in and looking after British country mansions.

As such, despite impending fears that the UK housing bubble is on the brink of bursting, Savills offers investors a diversified earnings stream with plenty of scope for growth in Europe.

Yesterday's trading statement revealed that the group's core residential business was holding up well, with no sign of the dreaded slowdown in the buy-to-let market. Demand for Savills' skills on the high-margin commercial investment side – driven by house prices rising at their fastest rate since the boom of the Eighties and the stock market gloom, is hampered only by a lack of available properties.

The main blip for Savills concerned its joint venture with the facilities management company Trammell Crow which failed to land a couple of key outsourcing contracts in Germany. The cost of chasing these massive bids, one of which would have seen the group handle outsourcing for Deutsche Telekom, is expected to lead to a write-down of about £1m.

The shares, unchanged at 182.5p, look fairly valued on a p/e of about 8 times. Hold.

Keep Teather on a tight leash

Like many smaller stockbrokers Teather & Greenwood has had a difficult time. Plunging stock markets have put an end to the lucrative IPO pipeline and put the institutional fund management division under pressure. That was the reason behind a warning in February that losses for the year could total £4m. In fact the figures came in slightly ahead of that forecast with a £3.8m deficit but it didn't help the shares which were left unchanged at 49.5p. This is a fraction of their 349.5p peak in early 2000. But it is still well ahead of the issue price of 23p in 1998.

T&G is sensibly cutting costs to adapt to tougher times. It has axed 20 per cent of its cost base including a reduction in staff from 300 to 245. As a result, T&G should be back in the black in the current year.

T&G has expanded its investment funds business with the poaching of the country fund team from Bear Stearns. And its corporate finance division now has more retained clients which partially offsets the lack of float fees. Strategically it would like to buy another smaller company broker though there is nothing on the radar just now. T&G is essentially a bet on the market and that looks a bit scary at the moment. But it could look attractive if markets begin to look like they have stabilised.