Bottom Line: Wilson can wait

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The Independent Online
WILSON Bowden has a reputation in the City for being the best housebuilder in the business. Figures yesterday, showing a 52 per cent increase in profits despite no underlying increase in house prices, show why the Leicestershire company is so popular.

It is not alone in having a long land bank, of almost five years' building at current rates, but Wilson does have an important edge when it comes to price per plot, a key measure of future profitability.

At perhaps pounds 16,500 per plot, land works out at a modest 18 per cent of this year's expected average selling price of pounds 91,000. That compares with over 20 per cent for most of its peers and has helped to keep operating margins at a healthy 14.2 per cent. Return on capital has averaged over 20 per cent during the past five years and never fell below 11 per cent during the recession.

Buying land cheaply and holding it for a long time gives a housebuilder great flexibility when the market has a rush of blood to the head as it has in recent months. With land prices up to 50 per cent higher than a year ago, Wilson can step back and wait while current traders are forced to join in just to stay in the game.

Profits this year could reach about pounds 35m, implying earnings per share of 24.8p and a p/e of 22. That is at the top end even of the optimistic ratings the building sector enjoys. But with a strong balance sheet and an impeccable buying record through the slump, Wilson Bowden deserves the premium.