Wilson falls on margin fears

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SHARES in Wilson Connolly closed 15p lower at 213p yesterday despite a 62 per cent increase in profits and 7 per cent increase in the dividend for the first half to June.

The market focused on a gloomy assessment of the outlook for margins in the housebuilding industry rather than the rise in profits from pounds 8.2m to pounds 13.3m.

Ian Black, managing director, said rises in the cost of raw materials and labour had not been reflected in higher house prices, which was putting pressure on the group's return on sales.

The new evidence of cost inflation follows worries that rising land prices would cut margins if house prices continued to stagnate.

Wilson's average selling price rose from pounds 54,000 to pounds 58,000 but the increase reflected a higher proportion of larger houses rather than an underlying improvement.

The overheating of the land market, which saw some sites in the South rise by between 50 and 100 per cent at the beginning of the year, had allowed the disposal of some sites. Despite the sales 2,200 plots were acquired during the half, taking the land bank to 14,400 units.

That compared with completions in the half-year of 1,750, a 9 per cent rise. Strong first-quarter sales fell in the second quarter as housebuyers worried over possible interest rate rises and unemployment.

All the increase in profits came from housing, with a pounds 1.18m profit from the property arm wiped out by a pounds 1.15m loss from construction.

Blaming persistently unrealistic pricing from competitors and overcapacity, the company said it had decided to pull out of contracting completely.

Net cash amounted to pounds 25m, with gearing, including land creditors, at 5 per cent.