Wilson Bowden opens new doors

The Investment Column
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Wilson Bowden's profits warning a year ago tarnished the reputation of one of the classier acts in the housebuilding sector. But yesterday's half-time figures suggest the group has started to recover from the traumas of last autumn and, after setting aside the natural caution of a chastened management, the outlook seems set fair.

There is no question that the past 12 months have been tough. Pre-tax profits struggled to match last year's figure and the 1.8 per cent advance to pounds 17.3m achieved in the six months to June would not have been possible without the first-time contribution of pounds 1.3m from Trencherwood, the ailing Berkshire builder acquired in April for pounds 32m. Looking ahead, David Wilson, chairman, chief executive and dominant shareholder, cautions that although the housing market is stronger than last year sentiment can be fickle and, echoing Wimpey last week, warns that the improvement around the country is patchy. Even so, things are clearly improving, with reservations, already17 per cent at the end of June, showing a 25 per cent improvement over last year, with completions running ahead of that. So the group's decision to raise the interim dividend by 5.3 per cent to 3p speaks greater volumes about its view of the future than Mr Wilson's caveats.

Its confidence has strong foundations. The group has bounced back strongly from the depressed conditions evident in the second half of last year, which carried over into the early part of 1996. Despite the weak start, completions in the core David Wilson Homes operation advanced from 929 in the previous six months to 1,034 in the latest period. With an extra 1 to 3 per cent extra on prices and a richer mix of bigger houses, that modest rise had a miraculous effect on margins.

At 13 per cent they have come back strongly from the low point of 10.1 per cent hit at the end of last year, even if they are still 2 percentage points adrift from the opening half of 1995. The implication is that, given the operational gearing, if current market strength is sustained, a further rise in completions should have a significant impact on the bottom line.

Meanwhile, after a lull, Wilson has started buying land again. Its bank is already equivalent to 4.5 years, leaving aside 7,000 acres under option, so with gearing still a lowly 16 per cent, it is well placed to selectively build on an already strong position. Add to that a full period's contribution from Trencherwood plus completions coming through from the property side, and the second half should be good.

Full-year profits of at least pounds 37m would put the shares, up 20.5p at 440.5p, on a forward multiple of 15. Reasonable value.

Calor generates

little excitement

Calor Group, which dominates the British market for bottled gas, has never set the world alight and yesterday's interim results continued that tradition. Yet behind its conservative exterior lies a company in transition to what could be a much more exciting future.

The main worry surrounding Calor has been the decline in the British market for liquid petroleum gas. Worse still, Calor has watched its share of the market slide in recent years from 60 to around 50 per cent. Enter John Harris, the recently appointed chief executive who earlier this year announced a root-and-branch restructuring of the UK business. The new approach has clearly begun to pay dividends in the first six months of the year. For the first time in a long time Calor has increased its share of the UK market, with the 1 per cent rise suggesting the long decline has finally been stabilised.

Operating profits before restructuring costs jumped by 22.5 per cent, but after a pounds 14m restructuring charge and losses from associates, partially offset by disposal gains, that translated into pre-tax profits down from pounds 26.2m to pounds 25m in the period.

Sorting out the core business should guarantee annual profits of around pounds 45m, but even so, future projections suggest the UK market for bottled gas will be flat at best.

But Calor has found more opportunities to expand overseas than it anticipated. The biggest foreign venture, in Brazil, has increased turnover by 20 per cent, but significant profits will not come through until the end of the decade. Calor's foray into the UK domestic natural gas market has also been more successful and less costly than most competitors', judging by the early results of trials in the South-west of England. But full competition won't happen until 1998, so worthwhile profits are unlikely until the next century.

The transitional costs involved will probably constrain full-year profits this year, but by 1997 current forecasts suggest the shares, up 0.5p to 253p, should be back on a modest multiple of around 14.

Optimists will hope that Calor is going to be a much livelier company in the future, but its history since the private Dutch group SHV took its dominant stake, now 51 per cent, suggests otherwise. Unexciting.

Fairey slowly changes its spots

Fairey, a famous name from the early days of British aviation, has had a second lease of life since its demerger from Pearson nearly eight years ago. After yesterday's 19.5p jump to 697p, the shares are now registering an 800 per cent gain over that period. But Fairey is a changed beast.

A series of 11 acquisitions totalling pounds 240m over the past five years has helped turn electronic process and control equipment into the core of the new Fairey. It was the addition from January of Particle Measuring Systems, a maker of contamination-detecting machines for the electronics and drugs industry, which provided the biggest boost to yesterday's interim figures. Pre-tax profits up from pounds 16.2m to pounds 21.3m in the six months to 29 June included pounds 3.88m from PMS. The interim dividend rises a chunky 12 per cent to 2.85p.

Up from pounds 10.9m to pounds 15.8m in the half year, the electronics businesses now contribute more than 70 per cent of group profits, but despite the signs of a slowdown in the market, chief executive John Poulter remains unrepentant about this bias. That is just as well, as his latest buy, Fusion UV Systems of Maryland, which completed on Friday, has cost half as much as all the other acquisitions put together.

Underlying growth in the electronics division remains around 9 per cent. That is below historic growth rates of between 10 and 15 per cent, but remains healthy by most standards. In any case, only 15 per cent of Fairey's sales are exposed to the semiconductor industry, whose long-term future must surely remain bright.

Of more concern is the general state of manufacturing industry, which groups some of Fairey's most important customers, and the limited growth prospects of its other three divisions. Profits of pounds 45m this year suggests the shares, on a forward p/e of 21, are up with events.