War looming, markets in a slump? Lehman Bros says it's time to buy

Albemarle remains a good defensive play; Sweet deal allows Honeycombe to pack a punch

With stock markets bumping along close to eight-year lows, depressed by a looming war with Iraq, the threat of terrorism and gloomy outlooks for the global economy, there are few rays of light for investors at the moment.

But research from Lehman Brothers says history shows this could be just the time to buy. Its equity strategy team has been compiling data on the flow of funds across borders and the relationship between these flows and the future performance of major stock markets. It also stresses that periods of low equity supply, such as through new issues, flotations and so on, is usually followed by a period of outperformance as demand for equity increases.

Ian Scott, Lehman's global and European equity strategist, said past events show that "it has been a good idea to buy the market when cross-border equity flows have been depressed".

Currently, its analysis shows that cross-border flows are at their lowest point since the 11 September terrorist attack and the Russian crisis in 1998.

Lehman's research says forward returns have risen by an average of more than 20 per cent in the 12 months following one of these crises. After the 1991 Gulf War forward returns rose 26.4 per cent and 25.5 per cent after the Exchange Rate Mechanism crisis in 1992.

The one anomaly is the 20.7 per cent fall in returns after the 11 September crisis. However forward returns rose by 10 per cent in the three months after the attack and by 11 per cent over six months.

The big imponderable is whether things are different this time. A war with Iraq may remove one cause of uncertainty, but prolong another such as the threat of terrorism. Also North Korea is becoming increasingly bellicose and the chances of a longer-term rift between "old Europe" and the United States is increasing.

Even so, the charts show that now might be the time for bolder investors to take a more positive view on the markets. A FTSE 100 tracker anyone?

Albemarle remains a good defensive play

The prospect of an economic downturn fills few businesses with joy. But for the pawnbroking industry, the cash tills start ringing a little louder.

Results from Albemarle & Bond, which prides itself on providing "extraordinary financial services for ordinary people", were good enough to prompt a small upgrade from its broker.

Pre-tax profits in the six months to 31 December rose to £2.3m from £1.8m on sales of £10.7m, up from £9.4m. And business has continued "strongly" since December.

About half of Albemarle & Bond's business comes from pawnbroking – where it issues loans against the security of, typically, gold jewellery for a fee of about 7 per cent of the loan value.

A further 15 per cent of sales come from selling both new and second-hand jewellery. The balance comes from third-party cheque cashing, for which it typically takes a fee of about £5 on a £100 cheque, and pay-day advances.

More recently, it has gone into unsecured loans, although that is still small beer. It said yesterday that it had built a loan book of about £700,000 in the space of about 10 months in this area.

The business claims to be "performing well" in all aspects. Pawn loans and pay day advances were up 14 per cent from a year before.

The business now operates out of 51 shops and is opening another two this year although it takes about two years to get its new shops into profit.

The company's broker, Collins Stewart, lifted its profit forecast for the year yesterday to £4.4m from £4.2m. The shares, which rose 5 per cent to close at 78p, trade on a forward price-earnings ratio of 11. They have more or less doubled from about a year and a half ago and should remain a good defensive play in difficult times. But the rating is up with events making the shares a hold.

Sweet deal allows Honeycombe to pack a punch

The northwest-based pubs operator Honeycombe Leisure may be small but an innovative deal with one of the country's top landlords saw it punching above its weight yesterday, as it extricated itself from a sticky situation regarding its gearing.

The group banked £11.72m by disposing of 12 freehold sites to Punch Taverns, a tenanted pubs group. The cash prize will allow Honeycombe to slash its gearing from an eye-watering 263 per cent to about 180 per cent. The sale leaves Honeycombe with 60 managed sites, all within a two-hour drive from Preston.

All well and good. But what James Baer, the chief executive, hopes will get investors flocking like bees to that proverbial honey pot is an agreement struck with Punch that could allow his group to triple in size – at no cost. Honeycombe will manage the 12 sites for Punch for the next 20 years, paying its new landlord a percentage of revenue and profit in lieu of rent. It already has similar deals with Jarvis, to run bars on university campuses, and a venture capital trust called Nectar Taverns.

The deal should shield Honeycombe from falling into the trap that has savaged many of its managed-house rivals of taking on too many leases that it can't afford. Punch will take the financial risk, leaving Mr Baer et al to pull in the punters.

Honeycombe promises it won't stray from what it knows best – running unbranded, high-quality pubs in the north of the country. Last month's healthy interim figures showed the group's strategy already works. At 50.5p, up 3.5p, the high-yielding shares are worth supping on.