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Galliford will have to try harder


GALLIFORD Try's first-half results will have done little to lift the City's prejudice against the few remaining hybrid companies which are involved in both contracting and house building.

The string of loss-making projects which left the group's construction arm nursing a £3.6 million loss after exceptionals will reinforce the impression that by expanding its housing side, the group somehow neglected other parts of the business.

Rather late in the day, the firm says it has ceased building operations that were dependent on work secured purely by price competition and is winding up unprofitable maintenance contracts.

Yet with a new man - Andy Sturgess from Skanska - at the helm, the group's contracting business has long-term potential.

The division has carved out strong positions in the water, rail and telecoms sectors with a £663 million order book, much of it through long-term framework agreements, with 70 per cent for the public or regulated sectors.

Assuming there are no more mishaps, the group should be able to achieve a margin of at least 1 per cent on its £500 million annual contracting turnover.

Whether this materialises fast enough to help provide a bulwark against a potential slowdown in housing earnings remains to be seen. The firm says there are clear signs of weaknesses for higher value homes in the south-east, where it has little exposure. But with an average selling price of £206,000, up 19 per cent in the past year, it is inevitably vulnerable.

In theory, the group could interest a bidder and brokers have suggested a breakup value of 40p. The current share price - down 10 per cent to 21.5p on the results - does not exactly suggest predators are circling or that the City is particularly excited at the group's prospects.

If the group had followed the path of Mowlem or Alfred McAlpine, for example, and shed its housing arm to focus on support services and PFI-type contracting, it may have been a different story.