Outlook opaque at Wimpey

On the face of it, George Wimpey's decision to swap its aggregates and construction assets for Tarmac's housebuilding division looks mad. Wimpey's results yesterday show profits on the operations which are being dumped soared from pounds 4.1m to pounds 13.4m in 1995, while the business being retained more than halved, dipping from pounds 45.1m to pounds 20.2m last year. With interest charges tripling, pre-tax profits slumped from pounds 45.1m to pounds 15.6m and the dividend, held at 5.5p for 1995, was uncovered by earnings per share cut from 8.73p to just 1.6p.

The aggregates business has bounced back from an awful period helped by higher prices and volumes in the UK. But construction, which chalked up pounds 4.4m of losses, continues to be bloody and the outlook for both markets continues to be opaque. Negative margins prevalent in contracting show no sign of improving and the reluctance of the Government to spend on infrastructure projects will limit recovery in aggregates.

Even so, the future for UK housing looks only marginally better. The market slumped again in the second half of last year. Wimpey's house sales slid 25 per cent in the period and net margins in the main private business crashed to 7.4 per cent in 1995. After a false dawn in 1994, the group's chosen measure of return on capital employed fell from 19 to 12 per cent.

The addition of Tarmac's more up-market McLean Homes operation will consolidate Wimpey's market share, particularly in the four bedroom sector, doubling sales to 12,000 units. But building McLean's land bank to the levels of the rest of the group could cost between pounds 20m and pounds 30m over the next three years. Even with pounds 100m from asset sales over that period, gearing is set to rise to over 40 per cent.

If profits recover to pounds 45m this year, the shares, down 2p at 134p, still stand on a prospective ratio of 16. Unattractive, despite the muted signs of life in the housing market.