Wimpey: FY05 results

9:15 a.m. Tue 21 Feb 2006

Housebuilder George Wimpey announced a 16% decline in pre-tax profits for the year as the weakening housing market eroded margins. The company had previously warned that profits would come in at the low end of expectations and the markets did not seem to be unduly disappointed.

The results would have been far worse if not for a sterling performance by the company’s US business, Morrisons, which reported a 20% increase in turnover and a whopping 64% increase in operating profits. Morrisons now makes up more than half the company’s operating profits.

The company says that the outlook for the UK housing market is improving but admits that it is difficult to predict how the current year will turn out. There has been an encouraging upturn in the UK order book (+30% to 7 weeks, +22% by value) but the wider picture is still gloomy. Worse, the company admits that the US market I snow showing signs of a slowdown. Some analysts hold the view that the US market is about two years behind the UK market in the cycle, which means the medium term picture is beginning to look very gloomy indeed.

The share trades at 546.4p, on a prospective PE (2006 earnings) of 8.5x with a yield of 3.5%.