The Investment Column: Housing slowdown spells bad news for estate agents Countrywide

Our view: Avoid

Share price: 397p (-4.75p)

The estate agent chain Countrywide turned in an impressive set of first-half results yesterday, cashing in on a recent mini-revival in the UK housing market. Although the main driver behind the improvement in performance was its 24 per cent leap in house exchanges during the period, the group also saw a slight increase in average commissions, as well as continued growth in its financial services and surveying divisions.

All well and good. But can such growth in the housing market be sustainable after such a long bull run?

Although Countrywide's management conceded yesterday that things have slowed slightly in recent weeks, they claim this is simply part of a regular summer lull.

The chairman, Christopher Sporborg, believes that even after last week's surprise 0.25 per cent rise in the base rate, the housing market will continue to make steady progress.

The worry, however, is that rates rise again. With most homeowners very heavily geared, the residential property market is extremely sensitive to interest rate rises, and undeniably finely balanced. In the event that it takes a knock, shares in Countrywide shares can only go one way.

This recent dive by the shares, after the Government's decision to scrap compulsory Home Information Packs, has left Countrywide trading at a very reasonable level. Furthermore, the dividend was increased by more than expected yesterday, and the company is on the verge of embarking on a £20m share buy-back.

Nevertheless, there is no getting away from the dangers of the housing market.

Only investors with the utmost conviction about the resilience of UK house prices should get involved with this stock. For everyone else, we believe the downside risk is too great and reiterate our previous advice: avoid.

Pipex

Our view: Buy

Share price: 9.10p (+0.07p)

Pipex Communications is the country's fifth-largest supplier of broadband internet services, and the price war that has erupted in the industry over the past few months has understandably done its shares no good. However, the falls look to have been overdone.

Pipex has responded to the fierce competition with its own package of offers alongside a high-profile advertising campaign, fronted by David Hasselhoff of Knight Rider and Baywatch fame, and says it has seen little tail-off in its subscriber numbers

It is important for investors to remember that there is a lot more to Pipex than merely broadband. The group is something of a mini-telecoms conglomerate. Earlier this year it bought Homecall, a fixed line carrier, for £40m. It also has a website and data-hosting business and a majority stake in a wireless internet joint venture with the US chip giant Intel which is developing a more effective alternative to Wi-fi. It is called WiMax, and Pipex boasted yesterday that it has a range of up to 6 kilometres. This compares with just 50 metres for Wi-fi.

Intel is spending hundreds of millions of dollars on rolling out WiMax in the US and will do the same in Britain through its Pipex JV. Although the technology is still in its infancy, it could end up being a major money-spinner for the British group.

Any company operating in the fast-changing technology and telecoms arena is a risky proposal. However, trading at 18 times forward earnings, with a high probability that the group will eventually be taken over, Pipex shares are worth tucking away.

Hot Tuna

Our view: Avoid for now

Share price: 30p (+1p)

Hot Tuna is the only company on the Alternative Investment Market that has a former supermodel on its board. However, Elle Macpherson is not an executive director of the surf brand just because she has a pretty face. Having built up her own clothes brand over the past 10 years she could be just what Hot Tuna needs.

The group is trying to re-launch the Hot Tuna brand which was highly successful in the 1970s, 80s, and early 90s but has been largely dormant for the past 10 years. It is structured as a wholesale operation, selling the T-shirts, shorts, swimwear and accessories to specialist retailers in the UK, Australia and the US. The company launched its 2007 spring/summer collection across the Atlantic.

Hot Tuna is focused on the 18 to 25 age bracket. The market it is addressing is worth more than £1bn. With what is a largely a fixed cost base, if it manages to secure a small part of this, the business could end up being seriously profitable. But with little in the way of sales at present, that is a big if. Investors would do well to wait and see how it gets along over the next few months before trying to land this fish.

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