BSkyB decided to pre-empt its own annual results yesterday by releasing subscriber figures for its fourth quarter, two weeks ahead of the prelims. The City liked what it saw, driving the shares to 700p – for the first time since James Murdoch unveiled his strategy back in the summer of 2004. Customer numbers were up by 90,000, better than predicted, and while Sky was emphatic that this was not simply a one-off gain from disgruntled Virgin Media customers, it was hard to ignore that view completely. Virgin Media is conceding that it lost about 40,000, conveniently the difference between its third-quarter gain of 51,000 and the fourth-quarter growth.

Sky argued, though, that it is gaining ground on everybody, signing up broadband and telecoms customers at an accelerated rate. With annual revenues per household growing £6 to £412 in the quarter, its stance is partly justifiable: Sky is selling more products to people; the average is 1.6. With broadband and telecoms gains exceeding rivals, at least in the third period, it seems pretty clear now that broadband is a success. That, at least, should give investors confidence that the internet strategy will deliver the profits hoped for by the end of the decade.

That said, whatever has been picked up from Virgin Media doesn’t look like it will be enough to offset the impact of the lost carriage and advertising revenues on cable. These could be as much as £60 million in the year to June 2008, offset by the £16.5 million in extra subscriptions. Not ideal, but for a firm expecting operating profit of £845 million in 2007-08, rising to £1 billion the year after, not bad either.

Eye up the valuation, though, and after yesterday’s surge Sky is trading at a healthy 26 times earnings, dropping to a fair 16.7 times in 2008-09. In other words, the market is assuming that broadband success is pretty much certain – Sky’s long-term goal is to surpass three million. On current trends that’s not unreasonable, but other risks remain – not least whether Sky will be forced to offload its £940 million investment in ITV at a loss by the competition authorities.

The bull case rests on hopes for future innovation. Sky wants to introduce a cut-price four channel product via Freeview, which it ought to be able to get past Ofcom, introducing a new price point for those who don’t want to pay the full £43.50 for television. That would bring revenues from people who are reluctant to take a dish and more expensive subscription. A Virgin Media settlement would help, too, while a private equity takeover of the cable operator will doubtless be a distraction for Sky’s principal rival.

It is a fine judgment as to whether the risks outweigh the rewards. On visible trends, Sky is fairly valued. The positive medium-term fundamentals make the shares worth holding.

Kier Group

Yesterday’s year-end trading update from the £760 million construction services group and the stock market reaction to it are difficult to square. Although Kier said that full-year profits for the 12 months to June 30 were “ahead of current market expectations” – prompting upgrades to 2007 and 2008 earnings estimates of 6 per cent and 3 per cent respectively – its shares rose just 0.7 per cent. That appears ungenerous, given that Kier, whose shares have fallen 21 per cent over the past four months, is one of its sector’s most conservative forecasters and consistent performers. Yet it also shows the extent to which successive interest-rate rises and this week’s profit warning from Bovis Homes have curbed enthusiasm for stocks with an exposure to residential construction: an activity that accounted for more than half of Kier’s first-half operating profits.

However, Kier’s tone was considerably more upbeat than its FTSE 250 peer. Although the company says that it has seen a “modest reduction” in visitors to its sites over the last quarter, reservation levels have remained healthy. Further, it has already secured 30 per cent of its expected housing sales for the current financial year. Equally encouraging is that Kier allowed analysts to raise their forecasts for the 12 months to June 30, 2008 – something that, on past form, it would have shrank from should it expect its housebuilding operations to come under severe strain. If nothing else, its prudent approach to profit recognition should give it room for manouevre. But yesterday’s update also shows that Kier remains fantastically cash-generative, with a 31 per cent rise in its year-end net cash to £145 million outstripping its expected increase in pretax profits by 10 percentage points. That war chest gives it plenty of firepower to further its aim of securing a housebuilder north of the border.

Commercial construction – where it has a £36.7 million contract to renovate the new Supreme Court building in Westminster – and building maintenance services show no signs of slowing. At £20.38, Kier sits at 12.7 times 2008 forecasts: fair value given its hybrid model. Hold.

Albemarle & Bond

Those who seek bearish indicators might think that they have found one in yesterday’s announcement that Albermarle & Bond, Britain’s biggest pawnbroker, is making the largest acquisition in its 24-year history.

That would be to ignore the fact that talks to buy the Leeds-based Herbert Brown (HB) – secured for £30.8 million – have been under way for a year. It also overlooks A&B’s track record of long-term noncyclical growth, during which its pretax profits have risen in all but one of the 11 years since it joined AIM. Besides, deals such as HB, the largest pawnbroker and cheque casher in the North of England, do not come along every day. It takes around 2½ years for a start-up store to break even, so, with 26 sites, HB provides a short-cut to growth – it will take A&B’s network to 112 outlets and increase its pawn loan book by 30 per cent – with no overlap with its existing operations.

Further, with the HB fascia being retained, there is scope to migrate A&B’s strengths in financial services – such as pay-day advances and money transfer – to the newly acquired portfolio, while importing HB’s jewellery retailing nous back to A&B.

For now, it should be enough that the acquisition – whose value nets down to £27.7 million on the disposal of freehold property – will immediately enhance earnings, even after yesterday’s share issue at 220p. Current-year earnings-per-share forecasts were raised 16 per cent to 14.8p. On those estimates, A&B is trading at 15.9 times – a discount to H&T Group, its AIM rival, at 17 times – with a 2.8 per cent dividend yield. That is attractive, given the presence on its share register of EZ Corporation, America’s second-largest pawnbroker, with a 28 per cent stake, beneficial trends in immigration and the recent clampdown by High Street banks on unsecured lending. Buy.

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