Sell before the Rock rolls back

Ceva looks chipper and worth holding; Savills still tempting even after good run

Northern Rock, the mortgage bank, delivered yet another startling set of annual figures yesterday.

Net lending rose 27.1 per cent, assets under management grew 24 per cent, while shareholders' return on equity improved 21.1 per cent and earnings per share were up 19.8 per cent. Just to round it all off, the Northern Rock dividend soared 15.3 per cent to 23.3p a share.

In the words of Bob Bennett, the finance director, it is a "win-win situation" for both shareholders and consumers.

Both are getting a better deal year-on-year and with the rate at which the business is expanding ­ gross lending was up a massive 37.6 per cent to £17.3bn ­ you can see why the house of Adam Applegarth, the chief executive, stands up.

For "win-win", however, one could read "too good to be true". In the past few years, Britain has witnessed a massive expansion of consumer debt, both secured and unsecured. At 8.2 per cent of the market, Northern Rock has grabbed more than its fair share of net mortgage lending in the UK. But how much more debt can the UK consumer handle? When the borrow-to-spend binge finally slows, or even stops, there could be some difficult questions to answer about the foundations of Mr Applegarth's construction.

The company points out that most of the remortgage business it does is with people refinancing existing debt and not using the company's balance sheet to convert the equity in their houses into spending money for cars and holidays.

If, however, Northern Rock stops expanding it may not be able to maintain such a customer-friendly policy on margins, which are pretty thin.

In turn, it may not keep so many of its new customers and Applegarth Towers might start to suffer some dry rot.

The shares' muted reaction to the higher-than-expected profits ­ up 4.5p at 739.5p ­ says it all. With the shares having raced up from a 12-month low of 605p, investors should head for the door. Sell.

Ceva looks chipper and worth holding

With the forthcoming flotation of Cambridge Silicon Radio, tech stocks and Bluetooth technology (which allows devices to connect without wires) look more fashionable again.

That has got to be good news for Ceva (formerly called Parthus) which specialises in "DSP cores" ­ it designs, but does not make, chips which end up in mobile phones, DVD players and MP3 gadgets. It also sells Bluetooth chips.

While the company's fourth-quarter figures were not stellar, at least they were in line with expectations and ­ crucially ­ moving in the right direction. Sales rose slightly to $9.6m from $9.3m in the third quarter. There was a pre-tax loss of $9.4m, after a restructuring and an asset impairment charge, compared with a loss of $1m in the previous quarter. Stripping out those charges, the losses were modest.

This year, the company is expecting to turn out its first full year of profits and Ceva should reach a break-even position in the current quarter. In any case, it is sitting on a cash pile of $59m ­ equivalent to about a third of its market capitalisation. Even if it misses break-even, cash burn is in the low single digit millions.

The outlook seems promising. The company says spending on designs like the ones it sells is increasing at last and it reckons its DSP business is set to grow 20-30 per cent this year. At the current share price, the company is valued at about $190m or about five times annual sales. With its primary listing in the US, the shares ­ which have already rallied strongly over the past year ­ are not that well followed in the UK. Hold.

Savills still tempting even after good run

Anyone who followed this column's advice in July last year to buy shares in Savills, the estate agent, at 171p, will have done pretty well.

The company yesterday put out another amazingly positive trading update. The shares closed at 366.5p, up 33p.

After such a great run, are the shares now too expensive? Not necessarily. The company yesterday said that December was "exceptionally strong", particularly on the transactional side in residential and commercial. The Christmas period is usually quiet. The company also has a property management/consulting arm, which is a steadier earner.

Remember that things only picked up half way through 2003, after a pretty tough first half for estate agents, especially for the likes of Savills, which serves the top end of the market. Then, in late summer, with the Iraq war and Sars behind us, the premium end of the property market suddenly came alive.

So, if the whole of 2004 turns out to be like the second half of 2003, Savills will do much better this year. January has been good. The company said it now expected profits for 2003 to be about £35m ­ 30 per cent ahead of expectations. You can almost feel the company's estate agents celebrating about the likely size of their 2003 bonuses.

At the current share price, Savills is on nine times forecast 2004 earnings, with a dividend yield of 3 per cent. That's still tempting, but remember that this is a bet on the housing market, which could falter.