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Sectors and the City: Why contractors are doing better than housebuilders
Housebuilders
	turnover (£m)	change %	pre-tax profit (£m)	change %	share price (p)	eps (p)	p/e ratio
Wilson Connolly	709.8	23	47.1	–30	176	13.8	12.8
Swan Hill	77.7	23	6.1	290	82	8.1	10.1
Wilson Bowden	789.5	9	139.2	15	904	104	8.7
Wimpey	1895.9	10	181.2	20	272	31.9	8.5
Persimmon	1477.5	98	188.2	80	427.5	52.9	8.1
Taylor Woodrow	2149.4	28	202.3	32	210	26.2	8.0
Crest Nicholson	608.5	10	53.1	10	225	32.6	6.9

Contractors
	turnover (£m)	change %	pre-tax profit (£m)	change %	share price	eps (p)	p/e ratio
Alfred McAlpine	554.0	47	21	–7.9	435.5	16.3	26.7
Balfour Beatty	3071.0	15	104	20	235	14.4	16.3
Mowlem	1698.0	12	29.5	20	256	16.7	15.3
Carillion	1889.8	–1	45.1	8	200	13.4	14.9
Amec	4467.5	12	116.7	18	426.5	28.5	14.9
Interserve	1273.0	39	53.6	29	520	35.7	14.7
Peterhouse	368.8	12	15.5	11	410	29.2	14.0
Keller	422.2	35	23.6	49	345	25.8	13.4
Morgan Sindall	909.2	39	20.8	35	427	39.8	10.7
Rok	124.9	36	3.8	288	184.5	17.3	10.7
Costain	462.9	20	8.7	25	15	2.5	6.0
Amey	831.0	19	–18.3	–167	260.5	–6.1	N/A
The tables above show just how good 2001 was for the construction sector. Across the industry, profits, turnover and earnings per share all increased last year compared with 2000. The only disappointments were the fall in Wilson Connolly’s profit and Amey’s £18.3m loss, which was mainly due to a change in how the firm accounts for its PFI bid costs. Alfred McAlpine’s profit fell, but this was because of the sale of its housing arm to Wimpey last September. The tables also show how much more highly rated contractors are than housebuilders. Housebuilders have an average rating of nine whereas contractors enjoy an average rating of 14.3. Housebuilders’ profits and earnings per share are on the whole higher than contractors’, which is the central argument used by those pushing for a rerating. The tables also illustrate that, although Wilcon’s profit dropped 30% last year, it is easily the highest rated housebuilder. This is because the firm’s sudden drop in profit has not been matched by a fall in its share price, as the City believes Wilcon’s long-term prospects are still good. Contractors have been far more successful at improving their ratings than housebuilders. Contractors such as Amec and Balfour Beatty trade on ratings of up to 16 – not far behind the market average of 17. This has been achieved by moving away from risky one-off contracts to long-term deals such as PFI maintenance contracts. “I find the whole ratings issue a mystery. There’s a bit of a black art to it,” admits Oliver Whitehead, chief executive of Alfred McAlpine. But his firm, with a rating of nearly 27, is the grand wizard among contractors. Its rating has been climbing since last year when it bought a utility company and a facilities manager and, perhaps most importantly, sold its housing division. The City has gradually rerated contractors over the past two years because they have given the City exactly what it wants – visible, long-term, guaranteed earnings. The government’s commitment to improve the railways, schools, roads and hospitals is also playing straight into contractors’ hands. “The rerating of contractors has occurred because they now have visible earnings from long-term and big contracts,” says Leslie Kent of stockbroker Seymour Pierce. “Take the Tube deals: there are huge numbers involved. They can only be good for firms.” The only difficulty facing contractors is convincing the City that Amey’s dramatic losses last year was a freak event, not to be repeated. The shares of other contractors involved in PFI were hit as the City reacted to Amey’s shock announcement. “Amey did the rest of us no favours because the City started looking sideways at our numbers,” says one contractor. John Messenger, Merrill Lynch’s building and construction vice president, says the challenge for contractors is to prove the quality of earnings, because construction comes with a lot of risk. “Cash flow and profits don’t always work in tandem. It’s very easy to book a profit and then spend eight years getting the money out of the client.”