Northern Rock is living up to its price premium

TeleCity has a long way to go; Tall order for Formula One fans only

Northern Rock, the mortgage bank based in Newcastle upon Tyne, has had a storming run in the past 12 months, outperforming the market by a substantial margin. It's an uncomplicated business, focusing on plain vanilla mortgage lending and savings and the market seems to like the recipe.

Northern Rock, the mortgage bank based in Newcastle upon Tyne, has had a storming run in the past 12 months, outperforming the market by a substantial margin. It's an uncomplicated business, focusing on plain vanilla mortgage lending and savings and the market seems to like the recipe.

Yesterday's upbeat trading statement continued the good form. Net residential lending in the first three months of the year was up 23 per cent on the same period in 2002. Going into the second quarter, mortgages in the pipeline are 27 per cent higher than a year ago. The shares jumped 35p to 728.5p, close to their all-time high since demutualisation.

The bank said it is on track to meet profits forecasts of on average £369m for 2003. It is also likely to achieve the target it set itself when it converted from a building society into a bank in 1997. This is to record an average of 20 per cent annual growth in assets under management.

One problem is the housing cycle. The bank itself says house price growth is likely to slow during 2003, which will probably lead to a slackening in the number of people wanting to remortgage to take advantage of the increased value of their properties.

However, there are a number of positive signs for the bank. It is the most cost efficient in the market – it uses only 46p to manage £100 of mortgage balances. This compares with the £1 or more used by some of the major banks. So if business levels drop, Northern Rock has more room for manoeuvre. The bank has also performed well on bad debts, with its rate of arrears on residential mortgages at half of the industry average.

Another issue is retention of existing business. Northern Rock appears to be in a good position on this front too, as its policy of offering all of its products to old and new customers has kept its redemption rate lower than the industry average.

The bank's impressive growth in the past few years has not gone unnoticed by the City, and it trades at 11 times current year earnings. That's a slight premium to most rivals but not unjustified given the track record. Hold.

TeleCity has a long way to go

It's a long time since internet hotel operations such as TeleCity thought they were the bees knees. Devastated by the dot.com collapse the business – and its share price – is a shadow of its former self.

It's still around but yesterday's financials for 2002 made unhappy reading. Pre-tax losses widened to £40.6m from £35.4m while sales fell to £23.8m from £25.1m.

Things looks slightly rosier after stripping out hefty exceptional charges to cover redundancies and asset write-downs. On an underlying basis, the loss was £5.3m compared with a -£13.1m a year before.

Hosting companies' computer kit and internet sites in warehouses is hardly the boom business it was in the year 2000.TeleCity has been slashing costs and has changed its strategy to one of signing up customers in a wider spread of sectors rather than just telecoms. It has had some success in winning new business but that has been offset by other customers disappearing. And while the market has stabilised, it is not growing.

TeleCity has £6.5m of cash and says it is fully funded to a cash generative position. It has also secured a £0.7m loan facility as a cushion in case things don't go to plan. The company also predicts it will have made an underlying profit in the first quarter of this year, a quarter earlier than it had expected. But the City gave up caring a long time ago and analysts, including those at the company's own broker Goldman Sachs, have given up writing research and making forecasts.

These results show the first glimmer of hope for some time but there is a long way to go yet. Avoid.

Tall order for Formula One fans only

One of the City's most unusual fundraisings is on the starting grid, engine revving. It is Justin Wilson, the Formula One racing driver who is attempting to raise £1.2m in order to stay part of the Minardi F1 team this season.

The Sheffield-born racer has not been able to secure lucrative sponsorship deals and so has turned himself into a plc. Investors have until 11 April to back him, with the minimum investment being £500. So far he has raised £860,000, with most of the funding coming from racing fans who have stumped up about £1,000 each.

This is not a float and there will be no shares traded on any stock exchange. However, the company qualifies for tax relief.

The proceeds are being used to pay Minardi and the idea is the company receives all Wilson's income for 10 years. How much this turns out to be is the key question. Minardi has never scored more than seven points in a single season. Wilson is seen as a talented driver but only managed 15th in Brazil at the weekend. The previous race in Malaysia saw him suffer temporary paralysis in his arms after a head restraint slipped and crushed his neck.

The risk factors in the prospectus are worth reading for sheer originality. One point made is that: "Whilst Minardi has said that Wilson's 6ft 3in height can be accommodated at little cost in an F1 car, other teams may perceive this as an issue." This may be the first time in stock market history that an investment may be ruled out on the grounds that it is too tall. For fans only.