Bottom Line: Hanson realism

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The Independent Online
THE PRICING of the Beazer float yesterday was eminently realistic. Buying an asset from as canny a reader of cycles as Lord Hanson, investors will be reassured that the housebuilder has been valued using cheap and cheerful Barratt as a model rather than the rarified rating of, say, Wilson Bowden.

There are good reasons for that caution. Having written down Beazer's land so aggressively in 1992, Hanson benefited from the company's immediate return to profitability but left little for the future. As a result there is little margin recovery in store.

That means Beazer's growth is predicated on volume improvement and selling price increases. In a low inflation environment that implies higher risk and more pressure on its avowed land-buying skills. The management may be up to the challenge, but a discount is called for to compensate.

At 165p, and on the basis of Warburg's forecast profits of pounds 51m to June 1995, the shares stand on a modest discount to Barratt's rating and a substantial one to the sector's stars. A prospective yield of 4.5 per cent provides some income attraction but the shares add nothing to what is available in tried and tested form elsewhere.

The issue will get away, but don't expect much of a premium.

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