View from City Road: Dodgy logic from Barratt

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The Independent Online
SIR LAWRIE BARRATT obviously retired from the chairmanship of Barratt Developments too early or came riding back to the rescue too late. Had he been at the helm in the three years to July 1991, he would surely have learnt the harsh lessons of the housing slump. Instead, buoyed by a return to profits in his first year back in charge, he presented a strategy to end the recession that would risk a return to the bad old days of boom and bust.

The Chancellor should ignore much of his prescription for fuelling the recovery. Sir Lawrie urges a 'major reduction' in interest rates to the 6 per cent that he claims has worked in the US. Yet, in the same breath, he says that the Californian housing market 'is similar to the difficult UK' and the group's operations there lost pounds 6.7m.

He echoes the industry's plea for abolition of stamp duty, yet few builders say that the temporary lifting of the tax this year had any effect on house sales. The arguments against his call for lifting the mortgage interest relief threshold to pounds 50,000 - on the grounds of cost and discrimination against those who rent - are well-rehearsed. Sir Lawrie would be far better to devote his energies to thinking of ways to regain housebuyers' confidence in houses as somewhere to live rather than as tax incentives or sure-fire investments.

Regaining that confidence will be a long hard slog. In the meantime, Sir Lawrie must continue to work at positioning Barratt to weather the slump. An pounds 11.5m pre-tax profit, compared with a pounds 105.9m loss, and a return to the dividend list - with a 2p payout - a year before the City had expected is a good start. But the pounds 84m of provisions last year will have helped him a lot.

To his credit, he has managed to reduce on- and off-balance sheet debt from pounds 205m, or 1.2 times net assets, to pounds 71m, or 39 per cent, in just a year, almost entirely by reining in overheads and reducing stocks.

The market was sufficiently impressed to mark the shares up 17p to 67p. On forecasts of pounds 25m for the current year, that puts them on a multiple of just six times earnings. Barratt is still a high-risk stock, but so are many of its rivals sitting on multiples of more than 15. For those who want to have an exposure to building, Barratt is one to consider.

(Photograph omitted)