Play the mortgage recovery with LSL

That's firstly because, even after a very strong start to the year, they only trade on 17 times 2013 earnings. While this number is above the historic average, it should fall rapidly as analysts upgrade their forecasts to reflect the snow-balling recovery. More pertinently, shares in Countrywide, Britain's largest estate-agency group, trade on 27 times earnings. As the bigger company and a FTSE 250 constituent, Countrywide is likely to attract more attention from fund managers and hence a premium rating. Yet such a wide pricing difference is hard to justify. True, LSL has historically focused on poorer parts of the country. Yet that may be to its advantage as the housing recovery spreads beyond the home countries. As multi-brand, multi-service agencies, the companies are otherwise very similar.

The second reason why LSL is our preferred play on the housing recovery is the track record of its management team. Chief executive Simon Embley reacted to the 2008 slump by embarking on a text-book diversification strategy, cutting costs in shrinking business areas while investing in "counter-cyclical income", notably from the buoyant lettings market. He also reacted to the rapid recovery of central London - one of the group's historical weak areas - by buying high-end agency Marsh & Parsons in late 2011.

The results of this strategy have been impressive. Adjusted EPS hit a new record last year, while underlying operating profits of £35.1m were just 4 per cent lower than in 2007. Meanwhile, the make-up of these profits has changed. Back in 2007, valuation surveys for lenders accounted for two thirds of operating profit whereas in the first half of 2013 they contributed just a fifth. Selling or renting out homes is now more important to the group than valuing them.

That said, the valuation business is poised to bounce back. Most mortgages in the UK involve a physical valuation, and LSL is the market leader in this field, acting on a third of all loans approved in the first half. That suggests the recovery that started around Easter should have a major impact on second-half revenues.

One risk concerns professional-indemnity claims. The banks have been trying to recoup losses on rotten boom-era mortgages by suing their surveyors. LSL reported statutory profits of just £6.7m last year as a result of provisions against such claims, which have been a drain on its cash. Mercifully, however, the worst seems to be over. There were no new provisions in LSL's latest results, suggesting the pace of claims is now steady. And the sixth anniversary of the housing peak comes later this year, which is significant because lenders cannot pursue dodgy valuations after six years.

A longer-term worry is the sustainability of the current recovery, which seems strong but is overly reliant on government intervention. The Bank of England has been suppressing mortgage rates through the Funding for Lending scheme, while the Treasury has introduced a couple of schemes, collectively labelled Help to Buy, to encourage banks to lend at high loan-to-value ratios. When these schemes are withdrawn in 2017, the market could slip back.