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House builders rush to float

Citysite

THE STREAM of house builders which are suddenly eager to raise funds on the stock market is threatening to turn into a stampede.

Following the heavy fund-raising exercises by Berkeley Group and the scheduled flotation of Bovis Homes, plans to join the stock market have been unveiled by Merseyside-based Morris Homes and now a Cumbrian firm, Merewood.

The City is anxious that these new issues are appearing late in the cycle. Yet regional house builders would argue that as, north of Birmingham, they have seen so little house price inflation so far, they have little to fear from a less feverish market. The shares are also being offered cheaply.

Morris Homes is floating on a prospective profits to earnings ratio of barely over 7 and in the confidence that it can continue buying land at prices which will maintain its 11 per cent margins.

By contrast, few in the City believe that Bovis has much chance of maintaining the 18 per cent margins which its South-East landbank is currently providing it with. Similarly, Berkeley Group will also struggle to buy land that will enable it to maintain its net margins of 16 per cent.

Yet, while all the new arrivals wax lyrical about the durability of the upturn, the convergence of these floats in the run-up to Christmas does leave the impression of haste. With the Chancellor admitting the economy is poised to slow next year and building society reports pointing to a slow-down in house price inflation, the market is hardly improving.

Shares in the existing quoted volume house builders, notable Barratt, Beazer and Wimpey, continue to look fairly bombed out.

Over-reaction

THE GOVERNMENT'S eagerness to look into the potential competition issues thrown up by Lafarge's planned acquisition of Redland has been widely derided as an over-reaction.

But the intervention, which is believed to centre on concern over market shares in ready mixed concrete in the Midlands and East Anglia, does suggest a new zeal by the authorities on the competition front.

In the light of its interest on Redland/Lafarge, it is difficult to see this government, for example, sanctioning the Tarmac/ARC or Wimpey/ McAlpine aggregates deals or allowing Ibstock to take control over its current share of the non-fletton brick market.