The Investment column: Laying the ghosts in construction

EVEN now, it is hard to mention a construction company's results without referring to the building slump which almost crippled the industry in the first half of the 1990s. However Alfred McAlpine laid some ghosts to rest yesterday by announcing a doubling of profits to pounds 24.1m for 1997.

Back in 1995, the effects of the construction downturn were still very much in evidence. McAlpine was reconstructing itself but ran up a pounds 101m deficit in write-downs and losses from discontinued businesses which lead to the resignation of Peter Parkin, then chairman and chief executive.

His successor as chief executive, Oliver Whitehead, pursued a tough-minded strategy, quickly exiting from general building work - to cheers from the stock market. The group has focused on construction services, such as maintenance, and special engineering projects, including football stadiums such as Huddersfield Town.

By ditching the cumbersome process of dealing with architects as agents, and by forming direct partnerships with customers, the special projects division returned to the black last year.

The second wing of McAlpine's new strategy was to capitalise on a recovery in the housing market while shedding the loss-making US housebuilders. In May the company bought its troubled rival, Raine, for pounds 44m, an investment which has already proved earnings enhancing. Ignoring restructuring costs house building profits shot up to from pounds 9.1m to pounds 21.4m .

Prospects remain bright for the house building division. McAlpine has been contracted to take part in a 3,300-home "new village" seven miles west of Cambridge, to be called Cambourne. The company already saw house- building jump last year, from 1,688 homes in 1996 to 2,674 in 1997.

Merrill Lynch forecasts that full-year profits for 1998 will grow to pounds 34m. The share rose 5.5p to 176.5p yesterday, putting the group on a forward PE ratio of 8. Considering its construction industry peers are on multiples closer to 11, the shares look good value. Buy.