Woolworths; Celsis International
Our view: Hold
Current price: 247.5p (+14p)
Since we last covered Taylor Wimpey, the housing market in the UK has pretty much ground to a halt – thanks to the collapse of Northern Rock, the UK's fifth largest mortgage lend-er. But if investors think things are bad over here, they ought to take a look at the US housing market, which is making ours look like a raging bull in comparison.
A trading statement released yesterday by the company, formed by the merger of Taylor Woodrow and George Wimpey, pretty much backed that up. Conditions are "subdued" in the UK and "challenging" in the US – about as bearish as a company can get without issuing a full-blown warning.
So how bad are things? Completions for the full year are expected to be approximately 5 per cent lower than in 2006, but the company remains confident of maintaining operating margins at around 14 per cent. Synergies from the merger of the two businesses remain on track to deliver £100m of cost savings by 2009 and there seems to be no reason to doubt that number.
But the company also noted that visitor levels were lower in the second half and uncertainty in the UK housing market looks set to continue. November and December are typically very slow months for the housing industry and a major shift in homebuyer sentiment looks unlikely in the near term.
It is important not to get too carried away with the bad news. This is still a company that is forecast to make more than £600m of pre-tax profits in 2008, and the long-term demographics and housing shortage in the UK still make a decent buy case for the housebuilding sector. On an undemanding 10 times forecast 2008 earnings, the stock is also attractively priced, and the market reacted well to yesterday's announcement – although probably because it was not as bad as some had feared.
Despite the positives in the story, there is little reason to buy the shares at this stage of the housing cycle. Although the US forms only a small part of Taylor Wimpey's sales and landbank, the situation on the other side of the pond will probably get worse before it gets better, and any improvement in the UK market is unlikely before the first quarter of next year. Hold.
Our view: Hold
Current price: 21.25p (+0.75p)
Tough times continue for one of the staples of the UK high street. Perhaps the only people smiling at Woolworth's woes are Apax Partners, which tried to buy the struggling chain early in 2005 at more than 50p per share. Yesterday's interim management statement on trading in the first three quarters of the year was hardly the stuff of dreams but at least the company now thinks there is a chance it could make a profit this year. Considering it made a loss of more than £12m in 2006, that is cause for celebration, even if investors should keep the champagne on ice for now.
Underlying retail sales at the group's 818 stores fell by 0.4 per cent after a difficult last quarter, hit by the dec-ent late summer weather and competition for shoppers' attention on Saturdays – the company probably has England's Rugby World Cup run to thank for that.
Wholesale and entertainment numbers were just ahead of forecasts, offsetting the slightly disappointing retail numbers. Anecdotal evidence would suggest that footfall is strengthening and, with Christmas on the horizon, the fourth quarter ought to reverse declining retail sales.
The dividend is very attractive at 8.8 per cent but it has no cover and should the company fail to move into profitability, it ought to be under threat. At the same time, management, under the leadership of the retail guru Trevor Bish-Jones, is focusing on cost-cutting and profitability and should be given more time to deliver.
However, with plenty of options in the mid-market and the chance that Woolworths could still fluff its lines, there seems to be little point in recommending a buy on the stock. For investors in the stock for the long haul, hold on and see what Father Christmas brings.
Our view: Buy
Current price: 207p (-5.5p)
Biotech companies that actually make money are a rare beast – investors looking at the sector might consider biotech services rather than the actual discovery of new drugs as a lower risk entry into the market.
Celsis International is just such a company. It operates on three levels – the prov-ision of diagnostic detection systems to speed up the drug discovery process; the identification of contamination; and the provision of testing services.
Yesterday's interim numbers were in line with forecasts but were impressive all the same. Revenues rose 31 per cent to $26.3m, and with gross margins rising to 68 per cent, the company reported a 19 per cent jump in operating profits to $4.6m.
Although at first glance Celsis might appear to be a tiddler in the biotech industry, its customers are anything but – Uni-lever, Merck, GlaxoSmith-Kline and Pfizer to name just a handful. The business has a global presence, with headquarters in Chi-cago, six major operational locations and global dis-tribution.
The company is confident it can maintain its double-digit growth record, and given the huge sums spent on drug discovery and dev-elopment, there is no reason to assume that any drastic change is in the pipeline. It has a strong balance sheet and is in a useful position should any acquisition opportunities arise.
Not for widows and orphans, but for anyone looking for a first foray into the biotech industry, Celsis looks like one that is unlikely to cause too many heart flutters. Buy.