The Investment Column: Prowting has good foundations

These are heady days for house-builders after the long recession of the early Nineties, with average house prices rising faster than the cost of building, making new homes simultaneously more attractive to buyers and more profitable to builders.

Prowting, one of the smaller quoted house-builders, is no exception. Even after an exceptional charge of pounds 700,000, pre-tax profits trebled in the six months to the end of August to pounds 6.8m. Sales jumped by one-quarter to 798 units and the average selling price rose by just under 6 per cent to pounds 94,800. Operating margins doubled to 11.3 per cent.

Magnus Homes, acquired in February, accounted for 200 units sold and contributed pounds 2m to operating profits, before factoring in the interest charge on the pounds 12.6m cost of the acquisition. The extra sales helped Prowting cut back on part-exchange sales, boost prices and increase margin.

Magnus also brought in tax losses which reduce the tax charge to a sustainable 22 per cent.

Land costs are rising but a three-year land bank has been maintained and sales this year should reach 1,750 units. Broker Panmure Gordon has upgraded forecasts for the current year from pounds 14.5m to pounds 16.25m, equivalent to 15.3p of earnings, excluding the exceptional item.

The shares rose 4.5p to 117.5p yesterday, still some way off their 12- month high of 143.5p in February. That is less than eight times prospective earnings, a rating which still reflects heavy losses in the recession and the narrowness of the market because of the majority stake in the hands of family members. Buy.