View from City Road: Wimpey call deserves the benefit of the doubt

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The Independent Online
George Wimpey could be accused of almost indecent haste in rushing to the market for cash less than three months after Grove Charity Management cleared the way by selling most of its stake. But Joe Dwyer, chief executive, clearly thought the 30 per cent rise in its share price since then was too good to miss.

That gives the group the dubious distinction of being the first general builder - John Laing's pounds 39m convertible preference issue apart - to ask for money since early 1991, when builders and materials suppliers were queueing up to tap their shareholders. Judging by the dismal performance of most of their shares since then, Wimpey should be grateful that the Grove stake stopped it joining the crowd.

The recovery talked about then proved no more than a figment of the industry's imagination; this time round, however, the foundations look rather more solid. The 27 per cent rise in private house sales since the start of the year reported by Wimpey was better than had been expected and enough other companies are talking about rising minerals prices to give some confidence that it is true. Contracting will remain a weak spot for another two years but Wimpey - unlike some of its rivals - is strong enough not to have to chase work at any margin.

The difficulty of doing a cash call before the Grove sale also meant it had to rely on good housekeeping, through cost-cutting and the sale of peripheral businesses, to survive the recession. The 30 per cent gearing which is the result of that programme means it does not really need the money, but at least shareholders can be confident that it will be invested in housing land and minerals. Those who raised money in 1991 simply tried (and generally failed) to use it to maintain their dividend payments.

The painful memories of 1991 mean that it is no coincidence that those builders that have tapped the market so far this year have been those which have least need of the cash. The walking wounded like Costain and YJ Lovell can only look on in envy while even Tarmac - which, with gearing of more than 60 per cent is everyone's favourite fund-raising candidate - has to persuade investors that Neville Simms, its chief executive, can manage the business.

Mr Dwyer himself has yet to prove he can grow the business as successfully as he shrank it, but he deserves the benefit of the doubt. Take up the rights.