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City cool on house builders

THE RECOVERY in the stock market has highlighted the low expectations which now surround the house building sector.

On Monday, for example, while the FTSE 100 rebounded almost 50 points, the share prices of most of the leading house builders were unmoved and some, notably Barratt, actually fell on the day.

While house builders continue to strike a confident tone about the outlook, the City remains concerned that they have paid too much for land and that volumes are set to come under pressure next year.

The result is that shares in the sector currently trade on little over 11 times this year's expected earnings, compared with a stock market average for non-financial stocks of around 17 times.

The gloom is made all the deeper by the lowly price at which Bovis Homes has been set. At 200p, the price is just 30p above the group's net asset value and represents a multiple of under 9 times current annual earnings. It suggests that the City has been far from persuaded that Bovis's strategy of improving margins across its regional operations can be achieved.

When the shares started trading on Tuesday, they got off to a pretty quiet start.

Indeed, P&O would probably have raised more through a trade sale earlier this year than the £226 million valuation which the stock market has put on the business.

Materials stock struggles overseas

THIRD quarter results from Hanson this week show how the price increases imposed by materials producers earlier this year are translating into some sharp improvements in profits.

For example, higher prices helped Hanson Brick's UK operation - which embraces the London Brick and Butterley brands - push up underlying profits from around £5 million to £9.3 million and margins climbed to 27.6 per cent.

At ARC, where operating profits rose by 31 per cent, prices are also reported to have held.

Yet while the UK trading picture may look bright, these are not particularly happy times for the major materials groups.

This week Blue Circle's share price fell by 6 per cent amid worries about the impact of the turmoil in the Far East on the group's Malaysian business.

In the City, concerns persist that margins on many heavyside materials products remain too low and that further consolidation will be needed to enable the major materials groups to compete

internationally.

Indeed, with shares in RMC and Blue Circle both in the doldrums, the danger is that they fall out of the FTSE 100, leaving Wolseley as the industry's sole representation in the leading UK stock market index.