Investment: Prowting looks a good buy

INVESTORS ARE always slow to recognise that housebuilding is one of the first sectors to head into a recession and one of the last ones to get out, so the boom phase in the cycle is inevitably brief.

Smaller housebuilders' shares in particular fell sharply in the recent shakeout and are still down by a third from the mid-summer peaks. But if Terry Roydon, the departing chief executive of Prowting is right, the industry faces a slowdown not a slump.

Prowting's profits in the six months to the end of August rose 15 per cent to pounds 8.7m. Sales were down from pounds 798m to pounds 774m but the company has moved up-market, and prices rose 14 per cent to pounds 113,000, including like- for-like rises of 4 to 5 per cent. Dearer houses take longer to sell. The number of site visits declined as interest rates rose, and the proportion of buyers looking for part-exchange has risen to 38 per cent. But land prices have come off the top, houses are still far more affordable than they were a decade ago, and interest rates are almost certainly on the way down.

Profit forecasts have been reduced in recent weeks but analysts left Prowting unchanged yesterday at around pounds 19m in the full year, equal to earnings of 18.2p a share.

For the following year forecasts range from pounds 19m to just under pounds 20m. At 96p, up a penny yesterday, the shares are well down on the peak and at barely five-times forward earnings they look distinctly cheap in anything but a severe recession.

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