Bottom Line: Berkeley builds on success

IT WOULD take more than a small setback in June house sales to dampen Tony Pidgley's enthusiasm, but another storming set of figures from the South-east housebuilder suggests that his bullishness is wholly justified.

Berkeley's forte is timing. It went liquid in 1988 as the market overheated and it set up a joint venture commercial property investor in 1991 when everyone else had run for cover.

Yesterday's figures showed the first fruits of that with an 81 per cent increase in profits from housebuilding and an additional pounds 11m from sales of its property interests.

In the core business, forward sales of houses that have not yet been built amount to pounds 45m which should ensure that forecast sales this year of 1,575 houses - another 12 per cent increase - at an average price of pounds 160,000, are conservative.

Pre-tax profits of about pounds 38.5m, assuming no further property disposals, imply earnings per share of 33.6p which, at the current share price of 398p, down 2p yesterday, gives a multiple of 10.

That is a 17 per cent discount to the rest of the sector and 12 per cent to the market as a whole, a harsh reflection of excellent profits and good prospects.

At some point in the next two years a discount for housebuilders will be appropriate, although it should not yet be as wide as it is. And Berkeley does not deserve to be less highly rated than its peers. Buy.

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