How our tips have fared: Aga

published 9 December 2013

Around a year ago I tipped shares in upmarket cooker company Aga (LSE:AGA). They looked cheap on 7.9 times earnings and I thought trading was about as bad as it could get. The shares have more than doubled since then.

The reason is Britain's booming housing market. The company needs a strong housing market to sell more Agas and Rangemaster cookers, and it has got one. Aga sales are up 15% so far this year, but Rangemaster sales which have historically been popular in new houses have been slower to pick up.

With the Help to Buy scheme in full swing, things look good for Aga right now as more money will be spent on kitchens. Aga is what is known as a very operationally geared' business. Most of its costs are fixed, which makes profitsvery sensitive to changes in sales. Thatmeans a big increase in demand can seeprofits soar rapidly.

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This is now what themarket expects, as analysts are pencillingin a profit increase of more than 40%for next year. If you are a shareholder,don't expect to see any big dividends yetthough. Aga's troublesome pension fundwill have first claim on any surplus cashfor a while.

In all, Aga should do well while thehousing boom lasts. And the shares,now on 12.9 times next year's profits,increasingly reflect the good news. Theymight still go higher, but anyone fortunateenough to have profited from their stellarrun might want to think about cashing in.

Verdict: take profits

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.