Cash provides buffer for Wilson

THE INVESTMENT COLUMN

The curious thing about Wilson Connolly's figures yesterday was the share price reaction - pushing the shares just 2p lower to 157p was a strangely generous reaction to a fall in margin at the core housebuilding operation from 12.5 to 8.5 per cent.

It was almost as if the City had factored in the company's legendary caution and taken its gloomy prognosis with a pinch of salt. Either that, or a single buyer in what is a pretty tight market had kept the price artificially high.

Pre-tax profits of pounds 10.0m were a third lower than in the first half of 1994 and well below analysts' expectations - brokers had pencilled in a slight improvement to perhaps pounds 14m. Earnings per share slipped from 4.7p to 3.5p while the interim dividend was held at 1.36p.

Analysts may have been taken by surprise, but really they should not have been. The reasons for the decline were nothing new and will be repeated ad nauseam over the next few weeks as the rest of the building sector's reporting season unfolds.

During the half-year, Wilson's sales amounted to 1,680 houses compared with 1,750 last time, a drop of 4 per cent. House prices also fell during the period while the costs of building the homes increased. Margins moved accordingly.

Amid the gloom, Wilson pointed to some rays of hope. Unlike many of its peers, the company avoided the temptation to buy overpriced land in the silly bull market in building land last year. A net seller in 1994, it still enjoys cash in the balance sheet.

The other encouraging development of the summer has been the decision by many of the largest players in the industry to cut their losses and withdraw.

The departure of the diversified groups eases the industry's over-capacity for the specialists who remain to grab a share of what has become a seriously depleted new-house market.

Whether those slender pieces of good news and the company's reputation are enough to justify a forward price-earnings ratio of 13 next year, a small premium to the market, is hard to say.

But with an unexciting prospective yield of only 4 per cent the shares look vulnerable.

Christies back

in the frame

Christies International is riding the back of a revival in the art market after five years in the doldrums. Renewed confidence is reflected in the auction house's sales for the first six months to June, up 18 per cent to pounds 460m. That took the first half of 1995 to a record, excluding two exceptional periods in 1989 and 1990, and the improved background fed through to a 24 per cent rise in interim pre-tax profits to pounds 10.1m.

The auction figures were swollen by the sale of some chunky US collections built up over decades, such as that of Mr & Mrs Ralph Colin, which fetched $40.6m (pounds 25.7m), highlighting the importance of pictures "fresh" to the market. As in the the last boom, impressionist and modern art is leading the market up, with auction sales soaring 68 per cent to pounds 111m in the latest period. Prices of pictures such as Van Gogh's Jeune Homme a la Casquette, sold in New York for $13.2m, are reminiscent of the heady 1980s.

But Christies is confident this time that demand is more soundly based. Its view is underpinned by several consignments already in hand ahead of the key sales later this year. They include a European collection of modern pictures and sculptures expected to fetch between $16m and $22m.

Christies will have to work hard to better last year's exceptional second- half sales, however, which included the $30.8m Leonardo da Vinci, Codex, sold to Microsoft's Bill Gates. More important is likely to be an easing of the margin slide caused by intense competition with Sotheby's, following the introduction of new seller's commission rates by both houses. That alone could give an pounds 8m uplift to next year's figures, according to broker Beeson Gregory.

But even if profits top pounds 20m this year, the shares, up 3p to 211p, are high enough on trading grounds on a prospective multiple of almost 30. The only prop is the presence of 16 per cent stakeholder Joseph Lewis, although he dampened bid speculation when he said he was a long-term investor. Hold.

COMPANY RESULTS

Turnover pounds Pre-tax pounds EPS Dividend

Anglo Eastern (I) 7.28m (5.00m) 4.1m (1.7m) 9.2p 4.0p - (-)

Fortnum & Mason (F) 30.2m (27.6m) 3.47m (2.31m) 541p (368p) 58p (24p)

Hornby Group (I) 10.7m (8.5m) -0.40m (-0.73m) -0.4p (-0.7p) nil (nil)

Thomas Jourdan (I) - (-) -0.20m (-4.41m) -1.11p (-24.5p) 0.5p (0.5p)

Litho Supplies (I) 33.3m (30.2m) 3.28m (2.46m) 8.3p (6.1p) 2.96p (2.73p)

Molins (I) 123m (98.6m) 11.2m (8.8m) 25.6p (22.2p) 5.9p (5.3p)

Perry Group (I) 217m (176m) 2.97m (2.56m) 7.7p (6.6p) 2.9p (2.75p)

Platignum () 18.8m (21.3m) -2.6m (0.21m) -9.93p (1.09p) nil (nil)

Thomas Walker (F) 4.27m (3.99m) 0.16m (0.22m) 2.02p (2.80p) 0.625p (0.50p)

Vinten (I) 54.4m (46.7m) 13.9m (9.1m) 24.8p (18.4p) 2.8p (2.4p)

(Q) - Quarterly (F) - Final (I) - Interim

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