Not much to build on

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Upsetting good results from one division with a clanger from another seems to be a speciality of combined housebuilding and construction firms, but Alfred McAlpine seems to find banana skins with greater regularity even than its peers.

Last year the contracting arm soured another strong performance from homes and quarrying and the shares, already 25 per cent below last June's rights issue price, fell another 5p to 145p.

Reversing the construction's division's 1993 profits of £1m into a £6m loss took the shine off group profits which, however, jumped from £1.17m to £10.7m. Earnings per share of 10.2p covered the 7p dividend for the first time since the late 1980s.

The company says that had it not been for continuing losses in eastern Germany (entered in 1992, withdrawal planned for 1995) and dud contracts in the Midlands, the division would have been in the black last year.

But on turnover of nearly £600m the small profit the rest of the division would have made is still a paltry return that underlines the need for a radical shake-up of the UK contracting industry. Unlike many larger competitors, McAlpine makes only a small amount of its sales overseas, where margins are usually more rational.

Elsewhere, housebuilding, which the company rightly pinpointed as its focus for growth last year, improved operating margins from 8 to 9.6 per cent as volumes increased and bigger houses pushed the average selling price higher.

In keeping with other builders reporting recently, however, McAlpine warned that demand weakened in the second half and prices overall remained stagnant. Land and other input prices have risen, putting a squeeze on margins.

The US operation, while profitable, made only a paltry £1.7m operating profit from sales of over £100m, and quarrying, with some of the group's best margins, was largely sold to Wimpey in March.

That disposal, and last year's £25m rights issue, have left the group in good shape financially with net gearing at the year-end of only 17 per cent, but given the uncertain outlook and the record of the last five years it is hard to see the shares going anywhere.

Since 1989, net assets have fallen by a third and the dividend is down by a similar margin and only just covered. Against that background, a prospective p/e of 10 this year (profits of £15m) and 8 for 1996 (£18m) is about right.