The Investment Column: Barratt gets up from its knees

Sir Lawrie Barratt, the outgoing chairman of Barratt Developments, was making much yesterday of the group's consistent performance since his return to the chair in 1991.

He omitted to mention the pounds 106m loss the group chalked up that year to extricate itself from some ill-advised land purchases in the late 1980s. But all that was forgotten as Sir Lawrie unveiled pre-tax profits up 35 per cent to pounds 70.1m in what he hopes will be, finally, his valedictory year as chairman. The figure is still below the pounds 77.5m record achieved in 1988, when he retired the first time.

But, in retrospect, that represented Barratt's high-water mark, before the overheated housing boom of the 1980s almost brought the group to its knees.

There are good grounds for believing that history will not repeat itself.

Barratt points to a much more stable market this time, while its policy of maintaining land purchases consistently through the housing recession means that it is not now having to desperately scrabble for land as prices, at least in the South-east, move rapidly against them.

Barratt's target of achieving 11,000 completions by the year 2000 looks well on course, with last year's 7,710 likely to rise to above 8,500 this year.

The gearing effect could be substantial: last year's 10 per cent rise in volumes and 4 per cent rise in average prices produced a 35 per cent jump in profits.

But caveats remain. The cost of land bank purchases is creeping up. Last year they rose from 21.8 to 24.5 per cent of eventual selling prices as the group splashed out in the expensive South-east.

Barratt also remains exposed to the interest-rate sensitive first-time buyer market, which accounts for 25 per cent of sales. The group must also fill the gap at managing director level caused by Frank Eaton's elevation to the role of executive chairman.

These may prove niggles and the US, where losses of pounds 2m should be eliminated this year, could prove a useful outlet for Barratt's energies if the UK market becomes overblown. Meanwhile, if Barratt can turn in profits of pounds 86m this year, the shares, up 0.5p at 264p, stand on a lowly multiple of 11. Reasonable value.