City slashes prices as Mowlem, Wimpey, Travis Perkins and Gleeson issue sombre statements

It was a grim week for the construction sector this week. Share prices fell sharply and analysts cut their forecasts as downbeat trading statements from Mowlem, Wimpey, Travis Perkins, and Gleeson hit the stock exchange.

Shares in Mowlem dropped 10% to 159p on Tuesday when it revealed that profit for the full year to the end of 2005 would be £20m lower than expectations. The consensus was that Mowlem would make a pre-tax profit of £32m, before any exceptional items, so analysts slashed their forecasts to £12m.

The profit warning was the fourth issued by Mowlem in just over a year.

Simon Vivien, Mowlem’s chief executive, had warned the City that his restructuring of the business, which is almost complete, and has resulted in 200 job losses in the construction division, would cost the business £6m.

Vivian said the £20m shortfall resulted from construction contracts in the UK and US. He also said there had been no consistency on reporting profit before his appointment in January because of excessive decentralisation. Vivian has not ruled out further write-downs.

Analysts are broadly supportive of the company because of the changes in senior management and low debt levels.

On the same day shares in Wimpey fell 5%, to 434p after it issued a downbeat statement about the housing market.

In a pre-closing update Wimpey said that sales in the first half of the year had fallen 17.5% compared with the same period last year, despite opening more sales offices.

Wimpey said that although the market had been encouraging at the beginning of the year there had been a turn for the worse.

It said: “The recovery was short-lived and, since February, the market has remained steady at a level well below the very strong first few months of last year. There has been no change in the market since the general election.”

The bad news continued as Wimpey said that it had been forced to offer more incentives to customers to sustain sales, and that increases in material prices had raised build costs. As a result margins had fallen 2.5% in the first half, compared with the same period last year.

One City source said the statement was “virtually a profit warning”.

Wimpey’s order book had dropped 7% in volume terms and 12% in terms of value, compared with the same period last year.

Kier had construction on its side, saying on Monday that it would offset the slowdown in the housing market (see story opposite).

And there was more bad news:

• Travis Perkins: The builders merchant and DIY retailer warned on Monday that it was in for a tough time this year because of a “challenging” trading environment. It said that profit for 2005 would be lower than expected because of falling sales at DIY chain Wickes.

• Gleeson: Last Thursday the company said further losses were expected for the year to 30 June. In March it said it had made a £16.6m loss at the building division at the interim stage. Last week it noted: “Further substantial potential losses have been identified on recently completed contracts.”