Investment Column: US growth moves Wimpey forward

Revamp success makes Somerfield a hold; Russian gold mine deal puts a shine on Celtic

George Wimpey and the other housebuilders are desperate to assure the home-buying public and the Bank of England's Monetary Policy Committee that the market has returned to sensible levels.

George Wimpey and the other housebuilders are desperate to assure the home-buying public and the Bank of England's Monetary Policy Committee that the market has returned to sensible levels.

The City, remembering what happened in the 1990 property crash, is jittery too. Like Persimmon earlier in the week, Wimpey yesterday stressed - in the words of Peter Johnson, chief executive - that "the medicine is working". That is, the four interest rate rises since November have had the desired effect of slowing down the runaway rate of house price inflation.

Mr Johnson points out that, unlike in 1990, there is not a high stock of finished product ready to come on to the market - in fact it is currently under-supplied.

A trading statement reported that, in the first half, Wimpey saw prices rises of 11 per cent, with the company seeing no more than a further 5 per cent increase in the second half. It seems to be a fact that new homes have seen far less selling-price inflation than the figure for all houses, which is running at some 20 per cent. Housebuilders say that this means their product provides good value.

Nevertheless, Wimpey has reduced exposure to the higher price points at its upmarket Laing Homes division. The company said that in the £300,000-plus bracket in the South-east, and the over-£250,000 in the Midlands, price have been stagnant "for some months".

Unlike other sector players, Wimpey offers exposure to the US, and here the market is moving ahead very strongly in the southern states where the company's Morrison Homes arm is active. While sales volumes will be flat in the UK in 2004, first half volumes were already 12 per cent ahead in the US, with a "much larger" increase expected in the second half.

So with the US providing the growth engine, and signs that the UK is going to have a soft landing, Wimpey shares, at 369p, trade on a derisory forward multiple of less 5. Buy.

Revamp success makes Somerfield a hold

Somerfield, often seen as the peripheral weakling of the supermarket chains, is proving it can hold its own in the dog-eat-dog world of grocery retailing.

With more central locations than some of its edge-of-town rivals, Somerfield, which also owns the Kwik Save chain, has embarked on a major refit programme to draw in customers. This has cost £400m so far and meant more fridge space and a better range of chilled and fresh foods. The concept is working. Reporting full-year results, it yesterday said sales in the refitted stores were now well ahead of those in its shabbier outlets. Sales per square foot are £10 and £14 in refitted Kwik Save and Somerfield stores respectively, compared to £7 and £10 in the old stores.

Hence the refitting programme is being rolled out faster and should be completed across its 634 estate in a couple of years. While sales in stores that have been refurbished for two years have now fallen back sharply, the current like-for- like figures for the group show that the business is trading well. And as well as further refits, it also actively looking for new sites, particularly in the convenience store and petrol forecourt market.

The management fought off a takeover attempt last year and although it is clear they are taking great pride in improving the business on their own, takeover hopes are likely to persist.

At 155.25p it is trading at around 14 times earnings, which makes it pretty fairly valued. Although others have more dominant positions than Somerfield, the company is demonstrating solid results. A worthy hold.

Russian gold mine deal puts a shine on Celtic

Celtic Resources' managing director, Kevin Foo, points out that four years ago, the mining company had a stock market value of £300,000.

Today, it is worth nearly £150m and its main asset, a 50 per cent interest in the giant Nezhdaninskoye gold mine in Siberia, has remained the same in that period.

The company is on the cusp of pulling off a deal that will give it 100 per cent ownership of Nezhdaninskoye, one of the biggest gold mines in Russia, and production should start again at this previously abandoned asset.

To achieve this, Celtic needs to agree a deal with Alrosa, the Russian state-owned miner which has the other 50 per cent.

The deal will be structured so that Alrosa takes Celtic shares (it will end up with around a quarter of the company).

Celtic will then need to invest more than $100m over the next five years to develop the mine, which will be funded through a combination of debt and by going to shareholders for money.

Celtic also has two operating gold mines in Khazakhstan, which form the basis of the company's current valuation. There is every reason to believe that once the Nezhdaninskoye deal is done and that mine is in production, Celtic shares will trade considerably higher. Buy.