View from City Road: Less than lucrative conservatism

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The Independent Online
Taylor Woodrow spent most of the 1980s selling itself as one of Britain's most conservative contractors; yesterday, it spent much of its results meeting stressing how conservative it will be in the future. In between times, its contracting business has lost pounds 32.5m as it revealed yet more provisions on Euro Disney and the Storebaelt tunelling contract in Denmark; an unexpected pounds 4.2m provision on a bank it is building in Saudi Arabia; and continued litigation over a Californian airport contract.

Tony Palmer, chief executive, blames 'unhappy coincidence' for the series of disasters. But allowing line managers to go headlong for expansion, with little control from the centre, sounds more like bad management. By happy coincidence, Mr Palmer - who ran the contracting division until 1990 - was promoted before the management shake-out in the division began. Now he is 'as confident as any senior manager in this industry can be' that past problems will not be repeated.

Even if he is right, the state of the British contracting market means the division is likely to do little better than break even this year.

In housing, the 48 per cent increase in reservations since the start of the year should bring the British operation back into profits. Overseas, the switch to buying substantial tracts of land from 'distressed sellers' such as US savings and loans, is a high-risk departure from its traditional long landbank strategy.

It could also need a lot of working capital, which Taylor Woodrow will be hard-pressed to supply - particularly if it is to reduce gearing to less than 40 per cent.

The more optimistic analysts are forecasting pounds 18m of profits this year and double that next, putting the shares, up 4p at 88p, on a multiple of 14 for 1994. Even if the dividend rises 50 per cent to 1.5p, the yield will still be less than half that of rivals like Wimpey and John Laing, where the management has proved itself up to the task. Sell.