Builder warns market

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The Independent Online

Deputy City Editor

Wainhomes, one of a clutch of housebuilders to come to the market a year ago, warned of the fragile state of the housing market yesterday even as it was reporting record completions and profits.

Its shares, floated at 170p, fell a further 5p to 97p as the company said first half profits would not be able to match last year's interims.

Ron Smith, chief executive, said: "Continued pressures on selling prices and a rise in construction costs will put further strain on gross margins.

"Improvements in margins and growth in volumes will not be derived from the sector's historic source of cyclical surges in demand, which are unsustainable and damage the industry as a whole." He went on to warn that house prices in Wainhomes' traditional core market in the North-west had fared even worse than in the UK as a whole, which itself had been flat.

A small rise in average selling price had resulted solely from the company's decision to sell larger houses.

After completing 1,300 houses during the year - the first time the company had sold more than 1,000 - pre-tax profits jumped by 62 per cent from pounds 6.2m to pounds 10m.

Earnings per share were 13 per cent better at 10.8p, reflecting the shares issued as part of last year's flotation, and a 4.5p total dividend was recommended.

Wainhomes, in keeping with the rest of its beleaguered peer group, enjoyed a bright start to calendar 1994 with site visitors and reservations at a higher level than for several years.

Interest tailed off sharply, however, during the second half of the year as prospective buyers worried about rising interest rates and job insecurity, and reservations in the first three months of 1995 were much lower than a year previously.

The shares have underperformed the other builders that floated in 1994 - Redrow and Beazer - partly because, having floated at the top of the sector's fortunes, Wainhomes came to the market at the highest rating of the three.

Jeremy Withers-Green, an analysts at Williams de Broe, expects profits this year of pounds 10.5m, putting the shares, after their fall, on a prospective p/e of under 9. The shares yield 5.8 per cent.