Wimpey treated unfairly by City

George Wimpey has almost completely reinvented itself since swapping its contracting and quarrying interests for Tarmac's McLean Homes house- building operations. Unfortunately, the City has remained studiously unimpressed and, despite a soaring stock market, the shares, down another 4p at 126p yesterday, are almost exactly where they were when the deal was announced at the end of 1995.

That seems unfair, as Joe Dwyer, the Wimpey chairman and chief executive, has delivered on nearly all his promises. Yesterday's interim results to June showed the UK's biggest house-builder swinging from a loss of pounds 8.6m to profits of pounds 12.5m in the six months to June. The half-way dividend, held at 2p, is covered for the first time for years, gross margins in both Wimpey Homes and McLean are at 20 per cent or above and both operations are on target to reach 6,000 house completions by 1998 or 1999.

Wimpey appears to have done well out of the Tarmac swap. However, the market retains fears that the group is having to spend lavishly to lengthen its land bank, particularly at McLean and in the south. The pounds 144m spent on land this year leaves Wimpey Homes' land reserves at 3.1 years' sales and McLean's at a thinnish 2.5 years. But Wimpey does not appear to be overspending, with land costs at between 20 and 25 per cent of sales price, while long-term land banks remain strong.

Indeed, with the housing market in upswing at the moment, Wimpey should squeeze at least three more years' growth out of its basic business, while also moving into new areas such as luxury homes, refurbishment and sheltered housing.

Full-year profits of pounds 60.8m would put the shares on a forward rating of just 11. Too low, but likely to remain so while fund managers PDFM and Mercury Asset Management sit on around 50 per cent of the shares.