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House builders set to go it alone

FINANCE City Site

THE MERGERS and combinations of recent years are paying off for the volume house builders.

They are gaining market share by selling from more sites and reaping scale economies in land and materials buying which larger operations can bring.

Yet the City's expectation of more house building mergers and the bid speculation that has fuelled recent rises in share prices in the sector may have been misplaced.

The 4 per cent slide in Persimmon's share price which greeted its final results this week was less a comment on its figures than a response to its signals on acquisition policy.

Chief executive John White's suggestion that the firm was more interested in buying land organically than in making acquistions left the City wondering whether much further consolidation in the sector is likely.

If the leading light in the sector, which has seen its share price rise 35 per cent over the past year, is not tempted to do deals, then perhaps none of its rivals are either.

It may also suggest land prices may be beginning to fall.

Behind Persimmon's sparkling figures, particularly the 50 per cent increase in the dividend, and the upbeat trading statement, concerns do remain that house builders will find the going getting heavier.

Persimmon has got off to a better start to the year than expected but the company has been selling from 15 per cent more sites than last year and it admits that sales rates per site have returned to a more 'normal' level.

Whether the group can maintain a 30 per cent return on capital employed in these conditions remains to be seen Similarly, Taylor Woodrow says its sales and visitor levels so far this year are slightly up on last year.

But it is not calling the bottom of the cycle and says it is still to early to predict the market for 2005. At its UK homes business, the focus still appears to be on cost control.