Wilson Bowden on firm footing

Wilson Bowden; Body Shop; Azlan

Big shareholders in the UK's housebuilders have had their fingers on the "sell" button for months, poised for signs that the firecracker housing market may be about to fizzle and fade.

Thus far, none. And none from Wilson Bowden, one of the best respected and conservatively managed companies in the sector. Analysts were touring the group's brown field housing developments in the North yesterday, and were told that trading has remained robust since the record-breaking interim results in August.

The group said: "Demand for new homes has remained good through the summer, with some week-to-week volatility as seen in the first half. We wait to see what effect, if any, the events of 11 September will have on consumer confidence and on reservations over the next few weeks."

The note of caution nudged shares lower, by 5p to 732.5p, but the stock looks like it will continue to outperform its peers. Wilson Bowden is one of the more defensive housebuilders, since it operates only a little in London and is not as exposed as its rivals to city centre property, both areas likely to be hard hit if the housing market tanks. Its heartland is the Midlands.

Housebuilding stocks are not looking so expensive as they did at the height of the 1980s boom. Planning restrictions and delays are also keeping selling prices high and with growth in the number of new households showing no signs of falling from its historic level of 200,000 a year, a wider crash looks unlikely.

Unfortunately, the group does have commercial property interests, too, through Wilson Bowden Developments. Times are tougher in this arena, with rents looking like they may have peaked and the economic downturn taking its toll on tenants from the hi-tech sectors. The group is at least rejigging its property portfolio to reflect the downturn, but it has plenty of retail and leisure interests that look vulnerable to a fall in consumer confidence. It is also harder now to sell development projects such as the giant West One development in Manchester, whose disposal – likely to add £5m to group profits – may not now be finalised until the next financial year.

There may be a better time to buy, but Wilson Bowden, on seven times forward earnings, should be a core holding.

Body Shop

Body Shop International has been a dreadful home for investors' money over the years and anyone who tips the shares risks ending up with a big dollop of Body Shop cocoa butter body cream in their faces. But maybe, just maybe, there is a chance to make a quick turn as the company drifts out of public ownership.

This looks increasingly likely after Body Shop confirmed yesterday that preliminary discussions are taking place with several parties over a possible bid. No names were mentioned but it is thought that there are five or six potential bidders with Schroder Ventures being suggested as one candidate. The statement followed a profits warning last month and the collapse of bid talks with Mexican group Omnilife in June.

The current negotiations could also disappear in a puddle of Body Shop fragrant goo as well, of course. But Seymour Pierce is suggesting a bid could be worth 110p to 120p per share compared with yesterday's close of 88p, up 4p on the day. And the downside may be limited with shares close to their five-year low and management initiatives to stabilise trading being viewed positively.

Yesterday's half year profits were in line with last month's warning, coming in at £3m compared to the previous year's £7.9m. Like for like sales in the six months to 1 September are down by 3 per cent on the same period last year. The trend has worsened as a result of the terrorist attacks on the US and the forecast for the second half is for like for like sales to be down by 4.2 per cent in the UK and 4.5 per cent in the US.

But product ranges are improving and there will be a big pre-Christmas marketing campaign designed to woo the twentysomething shopper.

Assuming full year profits of £27.5m the shares trade on a forward price-earnings multiple of nine and look worth a punt.

Azlan

Shares in Azlan were roaring ahead yesterday, up 9p to 75p, after the little computer networking consultancy said its revenues for the six months to September will be 13 per cent up on last year and profits will grow by 30 per cent to £7m.

It has been pleasantly surprised by robust sales in southern Europe. The group is well diversified, with operations in 15 countries, and with several strings to its corporate bow. It re-sells equipment for the likes of Cisco and Nortel, and offers ongoing services, but also trains IT professionals.

On a forward p/e of 7, the stock looks cheap for a likely winner in the bombed out sector. A re-rating will have to wait for a more general upturn in technology spending, though, and that could take some time.