Solid is a fitting term for Persimmon, the country’s largest housebuilder, and its first-half update was duly characterised as such. The company, named after the horse that won the Epsom Derby in 1896 and not after the fruit loved by Mediterraneans, eased fears of an imminent downturn in the housing market with stable figures for the first half and the promise of further progress.
The most promising detail on show was a 6 per cent rise in private sale reservations over the past ten weeks. That uptick, taken alongside positive results from Taylor Wimpey and Galliford Try in recent days, was greeted as a sign that the icy housing market had started to thaw.
Any excessive enthusiasm was tempered by the fear that the slowdown in spending on the high street could yet infect the housing market, so many analysts leapt on a better-than-expected improvement in margins as proof that Persimmon can perform even in a declining market.
The company built 4,439 homes in the first half, down 5 per cent on the year, which were sold at an average of £162,000. This price represented a 4 per cent decline because of a higher mix of smaller houses. Yet margins edged up to 9 per cent from 8 per cent. More evidence of the company’s self-help programme came at the debt line, where it exited the first half with a mere £15 million of borrowings despite a significant investment in land during the period. The company, which had £1.2 billion of debt only three years ago, is thus ideally placed to continue to build its landbank aggressively over the coming months, having acquired 7,500 plots in the first six months of the year in locations as diverse as Gatwick and Whinmoor.
Persimmon thus looks ideally placed to strengthen its position further over the coming months. Yet it still has some convincing to do, as it has given itself a lot to deliver in the second half to claw its way back to positive territory this year.
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The main bugbear for investors is the company’s exposure to the North, which could bear the brunt of an economic downturn. The North-South split is roughly 70-30 for Persimmon — although it argues that it is more like 50-50 if the line is drawn at Nottingham — which leaves it vulnerable to a downturn in the domestic market compared with rivals such as Berkeley and Barratt Developments.
Persimmon’s valuation is also full, because it has built confidence in recent years and restored its dividend, so there could be better times to buy.
Oakley Capital
Peter Dubens is not a man averse to taking risks. The serial entrepreneur has built his fortune by taking punts on everything from heat-sensitive T-shirts and skateboard shoes to computer servers and residential internet providers, and he has made money on every one. He even made a fortune out of smoothies.
Yet his listed private equity company Oakley Capital has been forced to defend its “cautious” stance regarding the worth of its assets after it reported that its net asset value would rise to 180p a share in the first half. That represents a 7 per cent rise from December’s results and a 22 per cent rise on the year, but the company was accused by some of undervaluing its portfolio to ensure that any future fundraising is not diluted by an excessive discount to its NAV. Its management argued that it takes a cautious approach with its investments, not its valuations.
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The company has stakes in businesses including a German energy price comparison site and a Dutch e-commerce company that its management team struggle to pronounce. It also owns a chunk of the telecoms company Daisy but has come to much wider prominence after securing a 50 per cent stake in the Time Out magazine franchise, which was embellished by a further investment in its sister publication in the US. Oakley’s decision to clear Time Out’s debt and provide funds for the transition to a paperless world is the kind of deal that the listed private equity company is keen on. Yet having completed four deals in six months, Oakley remains coy about splashing any more cash in the immediate future despite copious opportunities for restructuring plays in the publishing and retail sectors.
The stock still trades at a hefty discount to its NAV, cautious or otherwise, despite rising 5 per cent on the trading statement, so there appears little reason for buyers to take some time out just yet.
Axis-Shield
The results are in and they look good for Axis-Shield. The Anglo-Norwegian diagnostics specialist issued a reassuring trading update pointing to a 10 per cent rise in sales in the first half, which was just what the doctor ordered.
The growth proved better than the 6 per cent that had been pencilled in by analysts and was driven by an 18 per cent rise in the company’s point-of-care division. Demand for its on-the-spot testing kits, used primarily for diabetes diagnosis, proved robust and the company’s growth benefited from a return to a normal flu season this year.
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There were mixed results elsewhere, with its laboratory division posting numbers that disappointed Collins Stewart, but that was largely shrugged off because of the growth potential of a new lipid test that can be used to monitor the risk of coronary problems by measuring the amount of fat and cholesterol in a patient’s blood. The new treatment is in the pilot stage and is expected to launch in the second half once manufacturing has been transferred to Oslo.
The new test could prove transformational for Axis-Shield, but the potential pain point for investors comes in the form of the strong Norwegian currency, which stymied pre-tax profit upgrades despite the revenue beat. About 60 per cent of its costs are in kroner, meaning that a stronger pound may prove more anodyne for investors than its present healthy diagnosis.
Airsprung Group
Airsprung Group has been hamstrung by the weak consumer market and shares in the Trowbridge bedmaker, which owns the Gainsborough and Collins and Hayes brands, sagged by 9 per cent after it reported that its pre-tax profit had halved in the year to March and warned of tough times ahead. It maintained its dividend to provide some comfort, but investors are likely to rest uneasily given problems elsewhere in the retail market.
Gilts
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UK government bonds rallied for a second day, again in muted trading, after a well-received auction of ten-year gilts. September gilt futures, sharply lower last week, settled 35 ticks higher at 120.66, about 20 ticks better than the equivalent German bund contract. In the cash market, the yield on ten-year gilts fell four basis points to 3.33 per cent.
Bet of the day
Spread-betters were buying Bovis Homes’ share price before a trading update on Friday. Though Persimmon, another housebuilder, disappointed yesterday, Bovis has been buying land, building more homes and selling them in the first few months of this year for good prices. Capital Spreads offered 445¾p-447¾p on Bovis.
Tiddler to watch
Croma jumped 49 per cent to 1.83p after the surveillance and biometrics specialist landed a £450,000 contract, its biggest yet, to develop software for the Hampshire-based company CSS Total Security. Sebastian Morley, Croma’s chief executive, described the deal as “deeply significant”. It came before an annual trading update later this month.