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The Investment Column: Bryant looks a good building bet

House-building shares have been crumbling in last few months. But according to Andrew MacKenzie chief executive of Bryant, the upmarket house builder, there is no reason why the sector should continue to behave as if Armageddon is just around the corner.

On the face of it the group's 38 per cent rise in profits to pounds 21.3m in the six months to November certainly adds weight to his argument, and the sector rose more than 3 per cent yesterday. Bryant's growth comes from a 10 per cent rise in average selling prices, which helped operating margins recover from 7.7 per cent to 11 per cent, much nearer to the industry average.

But Bryant is an perfect example of the industry's past follies. It is still paying the price for over-expanding a few years ago when it misread the market, which meant profits almost halved to pounds 24.6m in 1996. Even now it has not finished restructuring the business and first-half completions fell 5 per cent to 1,752.

There are also growing fears that builders are at risk from rising labour costs. And Bryant would be more exposed than most if the Government introduces taxes on greenfield sites.

However, there are several reasons why Bryant looks a better bet than most in the sector. Its costs rose 5 per cent last year but are now moderating, as are land prices. And after gearing up its land bank, the group is still on target to sell 4,000 houses by the end of the current year and 4,500 next.

Bryant's shares jumped 9p to 122p on the buoyant results. Analysts have upped forecasts for the current year from pounds 49m to pounds 50m, rising to pounds 60m in the year to May 1999, putting the shares on a prospective p/e ratio of 10, then just 8. The shares look a buy, but as with any house-builder, investors should watch closely for any signs of a cyclical downturn.