Bottom Line: Marley high enough

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The Independent Online
THE 10p fall in Marley's share price yesterday to 195p, following a similarly unenthusiastic welcome for Wimpey earlier in the week, suggests that the market is looking for excuses to sell the building sector.

After doubling over the past 12 months, Marley's shares are as highly rated as any of its peers and there are certainly issues to worry about despite a quadrupling of profits. The most pressing concern is whether or not price rises, especially in clay and concrete products, can be made to stick.

In the past three months, blocks, paving stones, roof tiles and US bricks have all had increases of between 5 and 7 per cent pushed through. But similar attempts at repairing margins last year were scuppered by volume- chasing competitors and prices remain 25 per cent lower than at the peak of the market in 1988.

Other concerns include the weakness of the German car market, political uncertainty in South Africa, which accounts for a tenth of profits, high-ish gearing and the prospect that the dividend will spend another year in the doldrums. Those are quibbles, however, compared with the company's success in cutting 30 per cent of overheads over the past three years, the strength of its cash flow and the improvement of its main markets.

New housing starts in the UK and Germany are up 20 per cent on a year ago, which will continue to give a boost to the 60 per cent of profits dependent on house volumes. Car registrations continue to rise in the UK.

But pre-tax profits of pounds 42m this year and earnings per share of 9.6p imply a full prospective p/e of 20. With the market so skittish, that is high enough.