Investment: Looking to the bottom line pays off for builder in a difficult market


James Moore@JimMooreJourno
Tuesday 10 January 2012 02:10

Persimmon: OUR VIEW: Buy

SHARE PRICE: 506.5P (+25.5P)

If the housing market isn't going to pick up during the next 12 months, just what hope is there for Persimmon's shares?

On the face of it, things don't look good, and the company itself noted that the availability of mortgages remains "constrained". That isn't likely to change anytime soon.

What's more, the economy remains stagnant at best, and the outlook is horribly uncertain, with the eurozone continuing to teeter on the brink of disaster as its politicians indulge in a succession of summits without any signs they have actually grasped the nettle.

So not much to be optimistic about from that quarter.

That said, there were indications yesterday that Persimmon is more than holding its own in the current climate. The number of completions in 2011 (9,360) was basically flat, although there was a notable pick-up in the second half. What's more, forward sales at the end of 2011 stood at £615m, against £565m at the end of 2010.

The average selling price was down (2 per cent to £164,000) but that is a reflection of the fact that the company sold more "starter" homes to first-time buyers.

Efforts to help this crucial sector, with measures aimed at securing the re-emergence of 95 per cent mortgages due to come in the spring, appear to be bearing fruit.

The company also noted encouraging levels of activity in terms of show home visitations.

What investors should find encouraging are the company's financials. Full-year profits are expected to come in at the top end of forecasts, with margins increasing to 10.5 per cent.

Faced with a difficult marketplace, Persimmon has looked to its bottom line, and this appears to have borne fruit.

What's more, the shares are still trading at a sharp discount to their net asset value: Panmure estimates this at 641p for full-year 2012.

The forecast yield, a function of the need to perform rapid surgery on the balance sheet through the worst of the downturn, remains constrained at just 2 per cent. All the same, while they are not for the faint-hearted, these shares appear to offer considerable value.

Laird: OUR VIEW: Hold

SHARE PRICE: 152.1P (+2.7P)

Laird is one of those companies which you might not have heard of but whose products you probably use in some capacity.

As ever, with technology operations, its description of what it does, the "supply of products and technology solutions used in network infrastructure, wireless connectivity, displays and industrial controls" amounts to so much gobbledygook.

Translated, among other things the company makes a variety of electronic components used in wireless products (mobile phones, etc) and screens that protect them, and enhance their operations.

Nokia was once its mainstay, which might induce a bout of queasiness given its condition, but that has changed in recent years. Laird's customers now come from across the tech piste, including the likes of Cisco, Dell, even Apple.

Yesterday's terse trading statement indicated that things are basically bumping along as they should be without any real reason to get excited, although no real reason to get concerned. At least not yet.

However, Laird is a company that is really very sensitive to the underlying health of the global economy, so there are lots of headwinds blowing in its direction.

It has also undergone a considerable degree of turbulence and remains without a chief executive.

That said, while management arguably have something to prove, Laird shares are not expensive. They trade on just eight times 2011 forecast earnings and offer a prospective yield of more than 6 per cent. That rises to over 7.5 per cent in 2012, with management very much focused on the dividend's maintenance.

Given its history and potential vulnerability, we wouldn't advise steaming in just yet. There are just too many questions that the company has to answer. However, the yield certainly makes them worth hanging on to.

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