The Investment Column: Wimpey

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WIMPEY SHARES were pummelled yesterday after it disclosed some small accounting irregularities. It seems the market will take any excuse to bash housebuilders now, because of fears there could be further interest rate rises. But Wimpey is differentiated from UK housebuilders by its fast-growing US exposure, so should it be treated differently?

The group aims to double the size of Morrison, its US business, and grow the UK business by 50 per cent in the next five years. These are aggressive targets, so it's little wonder a handful of senior managers in one regional division got deferred costs to impress the management.

Last year's accounts were consequently overstated by pounds 4m, a figure written off in this year's interim figures.

Chief executive Dennis Brant says the team wasn't striving to meet Wimpey targets - it was their egos at work. The question now is whether the group is being too ambitious.

Yesterday's interim results came in at the top end of expectations, even after the pounds 4m write-off, thanks to the surging US housing market. That helped Morrison double profits - a fifth of group profits - to pounds 7.2m.

Yet the market is cautious about Wimpey because the US housing market is perceived to have hit the peak of its cycle. Interest rate rises are on the agenda in the US too.

That shouldn't hinder Wimpey. The structure of Morrison's land bank means tax charges will be particularly low going forward. A tighter market should help stabilise soaring labour costs.

Morrison is focused entirely on the southern states, where population is growing. Mr Brant is optimistic houses under construction will be unaffected by Hurricane Floyd. US revenues are currently 22 per cent up year-on-year.

The UK is powering ahead, helping boost current sales 24 per cent ahead year-on-year. Higher prices, following Wimpey's greater emphasis on detached properties, has driven UK revenues up 27 per cent. The number of buyers committing last weekend, the first since the rate rise, was unchanged.

Williams de Broe expects full-year pre-tax profits of pounds 96m and earnings of 19.8p, rising to pounds 112m and 23p in 2001.

The shares, down 14p at 120p yesterday, are well off their May high of 179.5p. While they are vulnerable to further rate rises, the fall looks overdone and the shares are good value.