Focus on margins helps push up profit but concerns over debt pile still remain

BUILD it, and they will buy. Well, not quite. Taylor Wimpey managed to beat expectations in its first half by focusing on higher prices – not volume. In the UK, it completed 4,804 sales at an average price of £168,000, compared to 4,702 sales at £153,000 in the first six months of 2009. Along with lower building costs, higher prices helped push margins up by 8.5 percentage points to 7.5 per cent, more than beating expectations of around three per cent.

The second half of this year also looks strong, with a robust forward order book. After that, things are less clear. Coalition plans to toughen up planning laws and economic uncertainty mean that the impressive recovery could run out of steam.

That’s a worry for Taylor Wimpey, thanks to its high gearing. Debt is still a dirty word – especially for housebuilders. It spent £60.2m servicing its £634m debt pile in the first half, and is likely to spend even more in the second half.

More risk averse investors should look at Berkeley instead, which has a £317m cash pile and a more resistant focus on London and the South East.

david.crow@cityam.com