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The Investment Column: Barratt sets off alarm bells

Barratt's results for the first six months to December were a welcome relief after the carnage of the recent building reporting season. Increasing profits by 19 per cent was an impressive performance measured against the substantial falls recorded by peers such as Beazer and Wilson Connolly.

The announcement of a pounds 90m rights issue to accelerate the group's land purchase programme, however, will set alarm bells ringing with anyone whose memory stretches back more than the past four years.

When Barratt plunged more than pounds 100m into the red in 1991 it was the direct result of just the sort of expansion that the company is contemplating over the next four years.

Sir Lawrie was quick to criticise his rivals yesterday for their over- enthusiasm in 1994 when greed took over from fear and most of the industry took their cheque books out to snap up what remains of the UK's scarce land resources.

The recent profits collapses are a direct result of the rapid escalation in raw material costs which that auction set in train.

Barratt dismisses suggestions that it is a volume junkie, out to get its own back on Wimpey, which since the asset swap with Tarmac is now at the top of the house building heap. It is also, chief executive Frank Eaton promises, a much better run business than the one that came such a spectacular cropper five years ago.

It may well be, although it is hard to judge using Barratt's preferred measure, return on capital employed.

The house building industry's propensity to write down asset values when the going gets tough makes that a meaningless ratio.

The market took yesterday's cash call in its stride, with Barratt's shares slipping only 7p to 232p, bang in line with the notional ex-rights price implied by the terms of the rights - one-for-four at 200p.

On the basis of forecast profits of pounds 51m for the full year - compared with last year's pounds 47.1m - the shares stand on a prospective price/earnings ratio of 13.

If you can shake off the fear that a battle between Barratt and Wimpey will send land costs soaring, that is reasonable value.

If the thought worries you, the shares are rather less attractive.