The Investment Column: Taylor Woodrow swims against construction tide

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The Independent Online
Many construction companies boast about the strength of their international operations offsetting weakness at home. Taylor Woodrow is unusual, however, in generating more from work outside the UK than inside. In the last year that geographical spread paid off handsomely.

In the 12 months to December profits actually fell, from pounds 50.8m to pounds 46m, largely thanks to 1994's one-off profit from the sale of Eurotunnel units and an exceptional hit this time, which we already knew about, to cover the cost of restructuring the UK construction arm. At the underlying operating level, however, returns were 17 per cent higher as all areas except home- grown contracting improved.

Running against the prevailing tide in the industry, Taylor Woodrow has stuck by its federation of businesses, a grouping of activities which at first sight seems to make little sense. Why, for example, should the company continue to run a trading operation, peddling among other things janitorial supplies and video equipment, when its real expertise lies in property development, housebuilding and private finance construction work?

No one will complain, however, about the 32 per cent jump in profits from the Greenham trading arm from pounds 4.7m to pounds 6.2m. Sales were up a healthy 16 per cent as organic expansion continued and the return on net assets employed of only pounds 28.5m would be the envy of many.

It is a better performance than construction, which despite substantial increases in overseas activity only managed to break even before the one- off costs of redundancies announced at the half-way stage. Taylor Woodrow has real expertise in private finance work around the world, but it is little better than its peers at converting that into profits.

In housing, however, the wide spread of activities in Canada, California, Florida and Australia was a real boon in the context of a still-stagnant market at home. An increase in housing profits from pounds 21m to pounds 23.4m was an impressive performance.

Taylor's shares have been among the sector's best performers so far this year, bouncing from a low of 100p last November to yesterday's 149p, an 8 per cent rise on the day as analysts pushed their forecasts between 10 and 15 per cent higher to pounds 60m. On that basis, the shares stand on a prospective price/earnings ratio of about 15. After a good run, the shares are about right.