Avjennings Ltd builds shareholders a big profit: Should you buy?

Avjennings Ltd (ASX:AVJ) has just reported a 42.1% spike in profits and the future remains bright.

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Many investors like to begin their process for picking sectors and stocks to invest in by firstly identifying major investment themes or tailwinds. This style of investing is often described as utilising a 'top-down' approach but could also be described as using a 'big picture', 'thematic' or 'macro' style.

Two themes which have been popular lately are firstly, the weakening Australian dollar and secondly, the strong housing market – in both cases the Reserve Bank of Australia's (RBA) interest rate decisions are playing an important part in the momentum of both of these themes.

One stock which is benefiting from lower interest rates and the subsequent boom in home building is Avjennings Ltd (ASX: AVJ).

AV Jennings has just reported a 13.7% increase in revenue to $118.5 million and a 42.1% increase in net profit after tax to $11.9 million for the first half of financial year 2015. The board has also declared a one cent per share fully franked dividend.

Other pleasing news to greet shareholders was a discussion of the progress of the company's renewed presence in Perth and data showing that lots under development had increased by nearly 300 to 1,539, with total lots controlled standing at 9,418.

The interim results bode well for the remainder of the year with the Chairman Mr Simon Cheong reminding investors that the group's results are usually biased towards the second half due to production staging and seasonality. This year they will also be underpinned by contracts signed in the first half.

With the cash rate expected to be sent even lower by the RBA in the coming months and forecasts suggesting a continued shortage of housing across the nation, the outlook remains good for companies exposed to the residential housing market.

For investors keen to play this theme AV Jennings is certainly a stock worth looking at; others that could also be worthy of a place on your watchlist are Devine Limited (ASX: DVN) and Villa World Ltd (ASX: VLW).

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.  

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