First half profits marked time at £2.6 million for Swan Hill, the diversified construction group that is turning itself into a pure house builder, writes Ben Cobley.

Fully listed Swan Hill (SHG) increased turnover in the six months to June by £8 million to £39.1 million, but pre-tax profits remained unchanged. The company, which is focusing on its housing division and selling its commercial property interests, says the margin squeeze reflects local authority demand for a larger proportion of lower margin social housing schemes in new developments.

Undeterred, Swan Hill reports that its transformation is progressing 'extremely well', as it now has a strong land bank of 750 plots (with a value in excess of £150 million) on which to build. The company also expects to be selling from 12 sites in the second half, compared to seven in the first after selling 108.

Chief executive John Theakston says he expects the average selling price for the year as a whole to fall 'just shy of' £250,000 – which should result in a substantially increased second half profit, as the average selling price in the first was £198,000. By the year-end, about 80 per cent of revenues should be from the house building side, rising to 95 per cent for the end of 2002.

Analysts argue that a prospective p/e ratio of 8 at the current share price is expensive when compared to other house builders, yet it also reflects a substantial 40 per cent discount to net asset value (127p per share). As yet, the market awaits the increased earnings that are promised.