Engineering a revival

678p -21.5p

Persimmon

1,223p-27p

MARK Selway said he couldn't be any happier yesterday. This is not unusual for the eternally optimistic Australian, but the chief executive of Weir Group had every reason to be upbeat after delivering another set of "cracking" results to the City.

When the company reports full-year results around March it will in all likelihood be reporting profits of more than 100 million, after selling its naval yard business and its Glasgow pump division and hunting the world for opportunities in mining and power generation.

Built on the Clyde more than a century ago, the engineering specialist is now truly international, with a heavy presence throughout Asia and the Americas, and, Selway noted, all five divisions now operating in India.

It was only last week that companies in the US were warning that they expected the spillover from the subprime loans meltdown to lead to a major slowdown in production.

Weir does not share their concerns, so confident of its natural ability to expand that it is focused on having higher returns than all of its competitors.

Its businesses are already both high margin and high growth and it is throwing off so much cash analysts have warned it should hurry up and get spending before it attracts the attention of a rival.

It hasn't always been easy, or indeed beautifully handled. Even after the company shook off a bribes scandal from the Iraqi oil-for-food programme.

As recently as this year it has made moves that, although not affecting the balance sheet, have not been good for its image.

Weir Pumps is now part of Jim McColl's empire, but was almost sold to a Swiss company, which would have seen hundreds of jobs lost in Glasgow, in a deal that McColl initially appeared to have been shut out of.

Despite the hiccup, the future appears extremely bright, and Weir is now being held up as a revival of British engineering, even though only a fraction of its staff are based in the UK.

Shares have gained about 50 per cent in the past year, as the market continually upgrades its profits estimates, but analysts still expect more, with target prices for Weir shares about 800p.

Such was the reaction to his latest major acquisition - US-based SPM for $653m (329m) - that the company appears to have plenty of goodwill in the bank with analysts almost whatever it comes up with.

Selway believes he has firepower to do another 300m of deals, with none of the observers apparently even suggesting Weir give the cash back to shareholders.

The only concern is that, given the state of the balance sheet, which has so much cash on it it is being described as "flabby", Weir could become a takeover target.

Hardly a difficult position to be in and, given the path the company has led investors over the past couple of years, it is unlikely they would give the shares away easily.

DECENT rise in profits. Bumper forward sales. Bullish outlook from the boss. So, sharp rise in shares? Wrong.

Despite Persimmon topping City forecasts with its first-half result yesterday, Britain's biggest listed housebuilder closed some 2.2 per cent lower.

Assurances from chief executive Mike Farley that buyers' confidence was set to return to full strength appeared to fall on deaf ears. Nervy investors seized on a dip in first-half completions, a possible squeeze on margins in the second half and concerns about the housing market in general.

Like most of its quoted peers, Persimmon has had a choppy stock market ride this year amid fears that five interest rate rises since last August would trigger a house price slump. That property rout seems unlikely, although the jury is out on whether borrowing costs will need to nudge a little higher.

While such uncertainty remains, potential buyers are likely to sit tight.

Not that Persimmon is battening down the hatches. The group is expanding its already substantial land-bank, and has not ruled out further acquisitions. With a wide geographical spread and a product portfolio ranging from affordable housing to luxury homes, Persimmon is better positioned than most to benefit from a resurgent market.

Tom Gidley-Kitchin, an analyst at Charles Stanley, talks of Persimmon as "the best managed UK housebuilder".

"They will do the best under almost all scenarios in the sector," he says. "As long as there is a housing-supply shortfall, the market will be good for the company."

Citigroup, which retains a "buy" rating on the stock, says the share price slide ignores medium-term issues such as the UK's chronic housing shortage.

Bricks and mortar have always had defensive qualities, and Persimmon remains a solid investment.