Bottom Line: Liability into asset

HAVING a near monopoly on housebuilding land in Berkshire seemed a good idea in the mid- 1980s when land prices were soaring and the M4 corridor was in the vanguard of the boom.

Things looked a little different by the summer of 1992 when Trencherwood went cap in hand to its bankers with accumulated losses of almost pounds 90m and net debt of pounds 45m compared with negative net assets of more than pounds 20m.

But by that time the millstone of a heavy South-east exposure was less a weight around Trencherwood's neck than a positive asset. And a 20 per cent increase in land prices in Berkshire over the past 12 months confirmed the prescience of Midland, Royal Bank and Schroders in resisting the temptation to pull the plug.

Trencherwood's return to the black last year was given a significant boost by land sales to housebuilders with less enviable positions in the tightly controlled southern market, and these will make a good contribution to expected profits of pounds 1.5m this year.

The alacrity with which builders are bidding up land prices may be irrational, based as it is on hugely optimistic expectations of house price inflation. But while it continues, Trencherwood's bank of 1,500 sites and a further 5,400 options is an attractive asset and goes some way towards explaining the quadrupling of the share price to 28p over the past 12 months.

That is a long way shy of the 400p at which it peaked in 1987, however, and the benefits of recent good news will be spread over an equity base four times wider than before the reconstruction. That means the shares trade on a p/e in the low twenties. Hardly attractive, given the record.