Taylor Woodrow unexciting despite turnaround

Colin Parsons has done a creditable job in turning Taylor Woodrow round from 1992's £94.5m loss, but he gained few friends in the City yesterday by turning in underlying profits more than 10 per cent below most analysts' expectations.

Pre-tax profits of £50.8m were well up on 1993's £30.2m, but they included an exceptional £8m profit from the sale of Eurotunnel shares.

The market had been expecting £48m of clean profits so it was little surprise that the shares, already well down on last year's high, fell a further 7.5p to 115.5p.

Even there they look to have little support, given the gloomy outlook for TW's main businesses and the fact that on brokers' forecasts for this year and next the shares stand on a premium rating to the rest of the building sector and the market as a whole.

Contracting, which saw profits increase from £1.3m to £4m, is plainly going nowhere in Britain, where the company candidly admits volumes are deteriorating and margin pressure is intensifying thanks to continuing overcapacity.

At least Mr Parsons, unlike some of his rivals, is facing up to the reality of the situation by cutting costs further and pulling out of operations where there is simply no hope of ever making a decent return. But a pre- tax margin of well under 1 per cent is plainly inadequate.

Property makes a better return and profits rose reasonably from £14.5m to £15.8m, but with no prospect of any development work (there is neither the cash nor the inclination in currently flat markets) the division offers little excitement.

Last year Taylor took the view, correctly it has transpired, that the real growth to come would be in housing, where the company has an enviable geographic spread.

Profits jumped during the year by 133 per cent to £21m with completions rising around the world and acquisitions chipping in nicely.

But the peak of that cycle is looking ominously close. In the UK prices are flat and margins under pressure from rising costs. Elsewhere, Australia looks ripe for a fall and the US is close to peaking.

Prospects are too unexciting to warrant a prospective price-earnings ratio of 13.3 this year and 11.5 in 1996 on the basis of profits of £54.5m this year and £64.5m next time. And a 2.4 per cent yield, even after a 50 per cent jump in dividend to 2.25p, hardly underpins the price. Sell.

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