Wimpey: trading statement

7:58 a.m. Fri 06 Jan 2006

Housebuilder George Wimpey said pre-tax profits for the year to December 2005 tax would be at the lower end of market expectations and below last year.

Despite higher volumes (group completions have increased to 17,024 from 16,654 last year), a 4% decline in (UK) average selling prices has eroded profitability. The company says more challenging market conditions in the UK and the impact of a number of (unspecified) one-off items also contributed to the weaker result.

In the UK, completions were 1% below last year (at 12,100) and average net selling prices were 4% below the last year, the result of changes in mix as well as increased incentives. The company has attempted to lock in as many sales for next year by slashing prices resulting in a 31% growth in the order book (to £731m).

In the US the company has performed well with prices rising 7% and operating margins showing strong growth. Despite the withdrawal from the Atlanta market overall Morrison completions grew 11% to 4,924 (2004: 4,422). Completions in the continuing businesses rose by 17%. The US business ended the year with an order book of $677m, 36% ahead of last year.

The company says they expect a modest slowdown in growth in the US next year and are hoping for a strengthening in the UK market next year. The driver of earnings this year has been the US market and expectations of a slowdown are likely to impair medium term growth. We are not particularly optimistic on prospects for the UK market and although a strong order book should ensure a decent first half there is little more that can be expected until the markets recover.

The share trades at 469p, on a prospective PE (2006 earnings) of 6.9x, within the sector range, with a yield of 4%.