Hope builds up at Westbury : The Investment Column

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During the housing market's heyday in 1989, Cheltenham-based housebuilder Westbury racked up profits of pounds 35m and basked in the reflected glory of a share price above 250p. Hopes of ever revisiting those halcyon days looked pretty fond in the loss-making, provision-loaded early Nineties.

But tangible evidence of a housing market recovery, and another set of resilient results, is encouraging such talk again. According to the Halifax Building Society, house prices have risen in each of the last nine months to April. Against this more benign background, a 10 per cent drop in Westbury's pre-tax profits to pounds 11.5m for the year to February may seem disappointing. But the figure included a pounds 1.7m exceptional charge taken for the rights issue funded acquisition of Clarke Homes, BICC's housebuilding arm.

Operating margins actually rose again to 8.7 per cent from 8.5 per cent, thanks to higher volumes and an improved product mix. Private house sales were 7 per cent higher, while houses fetched an average selling price of pounds 68,413, up 5 per cent, reflecting a further increase in the proportion of detached houses sold. These will soon account for half of Westbury's business.

All this was achieved in what Westbury admits were "difficult" market conditions where buyers are still calling the shots. For example, Westbury paid average incentives of pounds 3,585 in the second half, or 5.1 per cent of selling prices, versus pounds 2,431 in the first half.

Building market share is clearly the name of the game as conglomerates unbundle their housing assets and the sector consolidates. The Clarke deal, which expanded Westbury's land bank from 6,800 to 8,700 plots, was therefore timely though further in-fill acquisitions are not being ruled out.

The current year has got off to a good start with sales reservations, excluding Clarke, up 10 per cent on last year. House broker Panmure Gordon looks for 1997 profits of pounds 21.6m, putting the shares - up 6p to 210p yesterday - on a p/e of 13. About right, but even a small dose of price inflation would see the stock testing new highs.