Building groups to slash dividends
Sunday 06 September 1992
Building shares have lost more than 65 per cent of their value relative to the rest of the market since the election, when hopes of a recovery were dashed. Analysts expect further sharp falls as the reporting season gets under way.
The cuts from Amec and Wimpey - both expected to reduce dividends from 4p to 2.5p - will be the biggest shock to the market. Amec, reporting on Thursday, raised pounds 110.6m in a rights issue at 200p a share last March - almost three times last week's closing price of 68p - and has between pounds 30m and pounds 40m of cash on its balance sheet. It is expected to announce pre-tax profits of pounds 10m, down from pounds 21.9m last time, which means the 2.4p of earnings will not cover even the reduced dividend. In 1991, it increased its dividend from 9.7p to 10.25p, despite losing pounds 9.9m before tax.
Wimpey, reporting on Tuesday, has been selling assets and restructuring its business, which helped it cut borrowings from pounds 372m to pounds 206.4m - 35 per cent of net assets - in 1991 and a further pounds 155m is due from the sale of Little Britain this year. It has never had a rights issue, so its dividend costs only pounds 30m, but the payment was not covered by earnings in either 1990 or 1991.
Until a few weeks ago both companies appeared determined to use their balance sheet strength to hold their interim payments, deferring a decision until the final results in March. Since then the climate has changed, partly because of BP's decision to slash its interim payment. Now the cuts have been so widely discounted by the market - Amec's yield would be 20 per cent if the dividend was maintained and Wimpey's 17.7 per cent - that a held dividend would be mistrusted and shares would probably be marked sharply lower.
The companies are also concerned about future dividend growth. Commercial construction is not expected to recover until at least 1994, while housing is likely to remain flat for some time. Unless dividends are cut sharply there will be little prospect of growth for some years.
Taylor Woodrow's dividend cut has been well-signalled. Colin Parsons, who took over as chairman earlier in the year, made it clear the 1991 payment was only maintained because his predecessor, Peter Drew, had promised that to shareholders when the company raised pounds 162.4m in a rights issue last April. Analysts expect the interim payment to fall from 1.86p to 1p when it reports on Wednesday as part of a cut from 9.5p to 2.5p for the full year.
Further ahead, John Mowlem is expected to make a second cut in its dividend when it reports later in the month. It faces a write-off of up to pounds 6m because of retentions on its management contracts at Canary Wharf, the Docklands development now in the hands of the administrators.
Although these are likely to be made at the full-year stage, analysts still expect am interim loss of pounds 10m from the group and a cut in the dividend from 5.65p to 2.5p. Last year, its payment was halved to 10.5p, a level it said it hoped would be sustainable.
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