Investment: Wimpey seeks acquisitions

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The Independent Online
GEORGE WIMPEY, the UK's largest homebuilder, could spend up to pounds 300m on acquiring smaller rivals over the next few years in an attemptto exploit the recovery in the UK housing market.

The chairman, Joe Dwyer, yesterday said that the recent collapse in the share price of many housebuilders had opened up several takeover opportunities.

He noted that Wimpey spent up to pounds 300m a year to replenish its land-bank and that it could use the money to fund acquisitions.

Mr Dwyer said that the company was always looking for potential targets but was not in talks with any rival.

He predicted that some City institutions could be reluctant to sell their shares, as many housebuilders are trading at a discount to their net asset value.

His comments came as Wimpey dispelled some of the gloom surrounding the sector with a good set of results and an upbeat outlook for 1999.

In 1998, Wimpey posted a 35 per cent rise in pre-tax profit to pounds 85.1m on turnover up 15 per cent to pounds 1.40bn. The increase was driven by a surge in operating profits from Morrison Homes, Wimpey's US subsidiary, boosted by the buoyant American housing market.

The UK units put in a resilient performance in difficult market conditions, with Wimpey Homes, the largest division, increasing its operating profit by 35 per cent, and McLean, the upmarket housebuilder, advancing 7 per cent.

The new chief executive, Dennis Brant, said that 1999 had started well, with revenues up 11 per cent over last year.

The company underlined its optimism on the future health of the housing market with an ambitious programme of cost-cutting and sales increases.

Mr Brant pledged to increase Wimpey Homes' revenues by 50 per cent and to double Wimpey's US turnover within the next five years. In Wimpey Homes, growth would come from moving upmarket, with an increase in the number of detached houses built to over 30 per cent of the total from the current 20 per cent.

Average prices are also expected to increase from around pounds 75,000 to around pounds 85,000.

Mr Brant, a Wimpey insider who became chief executive last month, also promised to boost the division's poor margins by slashing costs.

He said operating margins, currently standing at just 7.8 per cent, had to reach 10 per cent within 2 years.

Most of the reduction will come from reducing the company's supplier base to "half what it was three or four years ago. The introduction of new building technologies should also save around pounds 1000 per house.

City analysts welcomed the results and were reassured by Wimpey's bullish view of the future. "It seems a fairly ideal scenario. Volumes are good and they seem to be able to increase market share at the expense of smaller housebuilders ," one expert said.

Mike Foster at Credit Lyonnais Securities is forecasting a profit of pounds 88m for 1999, which puts the shares, up 2.5p to 133p yesterday, on a forward multiple of just 7.5 times, compared with ratios of around 23 times for the overall market.

Mr Foster said that, at these levels the shares are very cheap and rates them a buy.