Bottom Line: Higgs moves house

SPENDING pounds 22.5m on housing land from English China Clays represents the best of a very limited set of options for boosting Higgs & Hill's earnings in the medium term. It will double the company's housing output and beats putting any more resources into its historic core, the tired out contracting market.

At an average pounds 24,000 for each of 930 plots, Higgs reckons it can generate a gross margin of 18 per cent even without any house price inflation.

But the fact that the company had to move west, out of its home patch in the south-east, to find land at a sensible price casts doubt on the wisdom of expanding into housebuilding at all at this stage of the cycle.

Analysts think the deal could increase earnings per share in 1995 by 0.5p to 6.5p after a similar dilution this year from the one-for-two rights issue at 105p to fund the purchase.

The shares closed 10p lower yesterday at 122p, having almost doubled over the past year. A prospective p/e of 19, two years out, rightly gives credit to Higgs's management but it takes an overly rosy view of its markets.