Solid foundations at Wimpey

Fyffes; Oxford BioMedica
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The Independent Online

Peter Johnson, chief executive of George Wimpey, was parachuted into the underperforming housebuilder 18 months ago with a brief to "grow and change" the business. He is doing just that.

The acquisition of Alfred McAlpine Homes and the integration of McLean Homes has created a £1bn giant, enabled it to slim down its head office costs and pour its energies into improving profit margins. The highlight of annual results yesterday was that improvement in margins, by a full percentage point to 12.4 per cent in the UK. Mr Johnson has promised investors the figure can be raised to the mid-teens sector average in the next two years.

The group has shaved £20m from annual staffing bill, more than the £18m it promised, and also reckons the benefits of the merger will extend to reducing building costs across the group. The unexpected extra savings more than offset a 200 per cent hike in the cost of funding the company's pension scheme.

Wimpey is also getting better at buying land for development. In the past, the company has too often been scrabbling around looking for plots on which to build its next round of homes. Now it has enough short-term stock to meet its demands for the next three years, and its bigger strategic landbank for longer-term developments.

While the twin threats of rising unemployment and higher interest rates will calm the housing market this year, a wholesale collapse in prices is not the likeliest scenario. The notoriously slow planning process keeps supply behind demand in most areas, so housebuilders should continue to grow earnings. Wimpey has a nice balance of interests across the UK, and a quarter of its business in the US, and says orders for its properties are strongly up on a year ago.

The 2001 results came in towards the top of the range of City forecasts, with turnover up 11 per cent to £1.9bn and profits, before tax and one-off items, up 24 per cent to £181m. Merrill Lynch is predicting a 14 per cent rise to £206m this year.

The shares have had a dramatic run up to their present levels, culminating in a jump of 22.5p yesterday to 265.5p, their highest level since the 1980s. But they are still valued at an 8 per cent discount to the rest of the sector. Partly, that reflects the company's mixed record, but the new regime's back-to-basics approach justifies at least a sector rating. Hold.

Fyffes

The transatlantic banana wars are over, the European Union has clamped down on fruit smuggling, and a new variety of sweet pineapples is on the way from Guatemala. The time is ripe for investors to get back into Fyffes, the Dublin-based fruit and veg distributor.

The recovery in the banana price, thanks to the EU's policing of a new trade accord between Europe and the US, meant that Fyffes has put the slip ups of 2000 well behind it. In 2001, pre-tax profits were back to €57.6m (£35.1m). That figure was held back by some loss-making joint ventures, but these have been discontinued.

Fyffes has made a great go of cost-cutting, shutting three of its banana ripening centres in the UK and selling ships. These efforts have boosted the cash position of the group, and gives plenty of scope for a big acquisition. Chiquita, a US rival now in administration, is a likely target, for around £700m. Chiquita has widespread production and shipping interests, and substantial cost savings could be gained by outsourcing and asset sales.

Two months into the current year, Fyffes was able to point to encouraging trading, and it is possible analysts' forecasts will be upgraded at the next update. For now the shares are on 9 times the consensus of earnings estimates for 2002. At 79p on the London market, they are a buy.

Oxford BioMedica

Oxford BioMedica, the gene therapy firm set up by the husband and wife professors Alan and Susan Kingsman, has made interesting progress in its attempt to develop a treatment for breast cancer. Its MetXia vaccine looks like it can cause the body to fight tumours beyond the immediate area into which it has been injected.

But let's not get too excited. Only four patients completed the treatment; only one saw the heightened immune response. That's far from statistically significant. It is certainly another promising little step, but Oxford BioMedica remains the highest of high-risk investments.

Annual results out yesterday were a little disappointing. Losses of £8.3m were up from £5.0m in 2000, but it was the lack of significant turnover from its drug development unit which was most disappointing. It missed out on a number of potentially lucrative collaborative agreements at the end of last year because of the retrenchment seen in the wake of 11 September. The house broker widened its forecast losses for 2002 by nigh on 50 per cent. The shares, down 5p to 32.5p, are for hardened gamblers only.

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